Glossary

Early repayment charge

An early repayment charge (ERC) is a fee some lenders apply when you clear a loan before the end of its term, to recover part of the interest they would otherwise have earned.

2 min read

Exit feeCharged on early settlement

Not universalMany loans have none

Definition

An early repayment charge — sometimes called an early-settlement or exit fee — applies where an agreement allows the lender to recover lost interest if you repay ahead of schedule. Not every loan has one; many short-term commercial facilities let you settle early and save interest, but you should always check the agreement.

In plain terms

If a windfall lets you clear a loan two years early, an ERC decides whether that actually saves you money. On a reducing-balance loan with no ERC, early settlement can save a lot of interest; with a stiff ERC, the saving shrinks.

Why it matters for your company

Before you borrow, ask whether early settlement is allowed and what it costs — it affects your flexibility if trading improves. See business finance fees explained and use the early settlement calculator.