Are early repayments allowed, and are there any early repayment charges?

Short answer: early repayment is often allowed, but charges and savings vary by finance type and lender

Most UK business finance agreements allow you to repay early, but the outcome is not always the same. Some lenders reduce the interest you would have paid and may add a small settlement fee, while others use fixed “factor rates” or minimum-interest clauses that mean you save little or nothing by repaying early. Always request a written settlement figure before deciding, and compare the fee versus the interest you’ll avoid to confirm the true saving.

How early repayment works across common UK business finance types

Early repayment rules depend on the product and how charges are calculated. With amortising term loans, you typically pay interest on the declining balance, so settling early can reduce total interest, though a prepayment fee may apply. With fixed-cost products like some merchant cash advances or short-term loans priced via a factor rate, early repayment rarely reduces the total cost meaningfully.

Asset finance is more nuanced. In hire purchase or conditional sale arrangements, many providers will permit early settlement and may grant a rebate on future interest, but some commercial agreements include minimum-charge or notice clauses. Finance leases may charge “break costs” or require all remaining rentals to be paid, sometimes minus a discount for early settlement.

Revolving facilities behave differently. Overdrafts and lines of credit are repayable at any time, but the benefit is simply paying less ongoing interest by clearing the balance. Invoice finance usually has a contract term; you can reduce utilisation at will, but exiting the facility before the minimum term can trigger notice-period fees or early exit charges.

Commercial mortgages and fixed-rate loans sometimes involve interest-rate hedging. Where a lender has fixed its cost of funds, you may face breakage costs if you redeem early, which can be significant. On variable-rate facilities, prepayment fees are generally lower or absent, though this varies by lender and agreement.

Key point: the headline APR or factor rate does not tell you how early repayment will be treated. The agreement’s early settlement clause is the source of truth, and it should be read carefully before signing or settling.

Typical early repayment charges, savings, and what to check in your agreement

Common early repayment charges include a fixed prepayment fee (for example, 1%–5% of the outstanding balance), a minimum interest or “retained interest” clause, or breakage costs linked to fixed-rate funding. Some lenders will charge the higher of a fixed fee or a calculation based on their funding loss. Others may waive fees after a minimum period.

Where interest accrues on a reducing balance, early settlement can save money, even after a fee. Where the cost is fixed up front (factor rate), the full cost is often still due regardless of when you repay, and a separate prepayment fee may also apply. With leases, the provider might discount future rentals using a stated discount rate, then add an admin or break fee.

What to check: look for an “Early Repayment,” “Settlement,” “Redemption,” or “Prepayment” clause. Confirm whether interest is amortising, variable, or fixed via a factor rate. Identify any minimum term, notice period, or exit fee. If the agreement references a hedging or swap, ask the lender to quantify potential breakage costs for different repayment dates.

Always obtain a formal settlement figure in writing. This should show the balance, any rebates, fees, and the total to repay by a specific date. Compare that total to the remaining scheduled payments to see whether early settlement provides a net saving and improves cash flow predictability.

If you operate in sectors with seasonal cash flow—such as hospitality—having the flexibility to reduce borrowing costs early can be beneficial. Many hospitality operators explore flexible solutions; see our overview of restaurant business finance options for context on how cash flow dynamics can influence repayment strategy.

Product-by-product overview of early repayment practices

Term Loans (amortising): Early repayment is usually allowed. You often save future interest because the balance would have declined over time anyway. A prepayment fee of 1%–5% or a fixed admin fee may apply; some lenders charge the higher of a percentage fee or a minimum interest amount.

Short-Term Loans with Factor Rates: The total cost is typically fixed up front. Early repayment may be allowed but rarely reduces the fixed cost, and a prepayment fee may be added. Ask if any “rebate of charges” applies—many providers do not offer one for factor-priced loans.

Merchant Cash Advance (MCA): Repayments flex with card takings, not time. Some MCAs are priced via a factor rate and don’t rebate if you pay off early. If your takings are strong and you clear the balance quickly, your total cost may still be the same as if it took longer; an extra prepayment fee can sometimes apply for lump-sum settlement.

Asset Finance (Hire Purchase/Conditional Sale): Early settlement is commonly available. Many agreements apply a statutory or contractual rebate methodology for future interest, but commercial deals for limited companies may differ from regulated consumer credit. Expect a settlement figure showing remaining principal minus any applicable rebates plus fees.

Finance Lease: Early termination can trigger payment of remaining rentals, potentially discounted, plus break fees. Some leases include a minimum term, notice periods, or a secondary rental. Confirm whether you can assign or upgrade to reduce penalties.

Invoice Finance (Factoring/Discounting): You can reduce utilisation any time, but ending the facility early may involve notice-period charges, early exit fees, or meeting minimum annual fees. Settlement isn’t like a loan; it’s about contract termination rather than repaying a set principal balance.

Revolving Credit/Overdraft: You can repay early with no formal settlement fee in many cases. The benefit is less interest accruing day to day. Some facilities include a non-utilisation fee or annual line fee that won’t be refunded on early reduction.

Commercial Mortgages: Early repayment is usually permitted. Variable-rate loans may have a small exit or admin fee. Fixed-rate loans can attract breakage costs designed to compensate the lender for interest-rate movements.

Always ask for examples. Reputable lenders and brokers should illustrate early repayment scenarios so you can make an informed decision.

Compliance-friendly guidance on assessing early repayment and requesting a settlement

Best Business Loans is an independent introducer, not a lender. We help you connect with appropriate providers and brokers, but we don’t arrange loans or set terms. We always recommend asking for a written settlement quote and reviewing it with your accountant or adviser before you proceed.

To assess whether early repayment is right for you, compare three numbers: the settlement total payable today, the total of remaining scheduled payments, and the interest or fees you’ll save net of any early repayment charges. Consider cash flow timing and tax implications, and verify whether your facility has minimum-term obligations.

When you request a settlement, include your preferred repayment date so the quote reflects interest up to that day. Ask the lender to break down principal, accrued interest, rebates, admin fees, and any breakage or prepayment fee. If the cost structure is complex—such as a fixed-rate loan with hedging—request a call to walk through the calculation method.

If your agreement is consumer-credit regulated (for example, for certain sole traders, small partnerships, or unincorporated businesses), you may have additional statutory rights, including a clear method for early settlement and potential rebates. Limited companies are often outside consumer credit regulation, so terms are purely contractual and vary more widely.

All financial information should be clear, fair, and not misleading. You should not rely on general guidance as financial advice. For tailored advice, speak to a qualified professional who understands your business, sector, and taxation position.

Practical steps to take before you settle early

• Locate the “Early Repayment” clause and confirm all fees and notice periods.
• Request a written settlement figure and expiry date for the quote.
• Calculate net savings after any prepayment fees and administrative charges.
• Check if the facility’s benefits (e.g., headroom, credit score impact) are worth retaining.
• If refinancing, compare the settlement cost to the benefits of the new facility.

If you wish, our platform can introduce you to providers who outline early repayment terms transparently from the outset. This helps you decide with full information before committing.

FAQs, examples, and how Best Business Loans can help

Do most lenders allow early repayment? Many do, but not all treat costs the same way. Some reduce future interest and charge a small fee; others keep the fixed cost and may add a prepayment fee.

Will I save money by paying early? It depends on how your agreement calculates cost. Amortising interest commonly produces savings net of a fee, while factor-rated products often do not.

Is there a standard fee for early repayment? No. We frequently see 1%–5% of the outstanding balance on term loans, but the market is varied and product-specific.

Can I exit an invoice finance facility early? Yes, but you may need to serve notice and pay any early exit or minimum-fee shortfall. It’s not a traditional “settlement” like a loan.

What about fixed-rate deals with hedging? You may face breakage costs if you repay during the fixed period. Ask for scenario examples before signing or settling.

Best Business Loans uses smart matching to connect established UK businesses with finance providers whose terms—including early repayment treatment—align with your priorities. We don’t promise the lowest rate every time, but we aim to help you find providers that are clear and credible about costs, settlement rights, and flexibility.

Ready to explore funding with transparent early repayment terms? Complete a Quick Quote to get matched with suitable lenders or brokers. It’s fast, free, and there’s no obligation to proceed after you see your options.

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• Two-minute form to outline your needs and timelines.
• AI-assisted matching with providers active in your sector.
• No obligation—compare terms and decide your next step.

Best Business Loans does not offer loans or provide financial advice. We introduce you to third-party providers who may be able to help; eligibility, costs, and terms are set by them. Always review your agreement carefully and consider independent advice where appropriate.

Summary: what to remember about early repayment

• Most business finance products allow early repayment or exit, but the value depends on cost calculation and contract terms.
• Amortising loans and many HP agreements can yield net savings; factor-rate products and some leases may not.
• Always request a settlement figure in writing and compare it to the total of remaining payments.
• Fixed-rate deals can include breakage costs; revolving facilities mainly save ongoing interest when cleared.
• If flexibility matters, prioritise lenders who are transparent about prepayment fees, notice periods, and rebates.

Next step: Start your Quick Quote to be introduced to providers with clear early repayment terms suitable for your business.

Information on this page is for general guidance only and is not financial advice. Early repayment rights and charges vary by provider and product. Always read your agreement and, if needed, seek independent professional advice. Best Business Loans acts as an independent introducer to UK lenders and brokers.

Last updated: October 2025