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Estimates the settlement balance now and the interest you'd save by paying a loan off early. Assumes a fixed-rate annuity and no early-settlement fee.
Step 1 — request a written settlement figure
Ask the lender for a formal early settlement figure valid to a specific date. It should state the outstanding principal, interest to that date, any rebate and any charge.
Step 2 — check each component
Confirm the balance matches your records, the accrued interest uses the right per diem, and check whether the Rule of 78 has reduced the rebate. Query anything that looks off.
Step 3 — identify any early-repayment charge
Look for an early-repayment charge or, on a fixed rate, a break cost. These can offset the interest saved, so they are central to the decision.
Step 4 — weigh the saving
Compare the interest saved against any charge and what the cash could earn or is needed for elsewhere. The calculator below helps you estimate the saving.
Step 5 — settle on the right date
Because interest accrues daily, pay on or before the figure’s valid-to date, adding per diem for any later day.
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Frequently asked questions
What should an early settlement figure include?
The outstanding principal, interest accrued to the settlement date, any interest rebate, and any early-repayment or break charge. Always get it in writing.
Why check the rebate method?
Because the Rule of 78 gives a smaller rebate than a fair actuarial calculation, reducing your saving. Ask which method the lender uses.
When should I not settle early?
When the charge outweighs the interest saved, or when the cash would earn more or is needed elsewhere. Do the maths net of all costs first.
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