Early Settlement

Wednesday 10 January 2024

  • One or more early repayments may be made throughout the life of the credit agreement. This applies to all credit agreements except those secured on land (or given specific exemption)
  • The borrower must give notice to the creditor of his intention to make an early repayment and the payment must be made no more than 28 days after the notice is received by the creditor. Notice can be given orally or in writing and there is no prescribed format and the creditor must check with the borrower where it is not clear their intentions from the notice. Creditors must not, though, suggest a form of words to the borrower.
  • If a borrower is in arrears, any early repayment must first be used to repay outstanding amounts and unpaid interest.
  • The borrower has the right to request a new statement setting out the position of their account post-repayment but the creditor has only to do so once payment has been received. The information must be provided 7 days from both notice and repayment being received.
  • As early repayment will reduce the amount outstanding, it will either reduce future repayments or reduce the number of future repayments. It is not stipulated which the creditor must take however this must be reflected in the borrower’s credit agreement.
  • A creditor may claim compensation in cases of early repayment but only in specific circumstances and in a fair and objectively justified way. Compensation can only be claimed where the credit agreement provides for the rate of interest to be fixed and cannot be claimed where the rate of interest can be varied by the creditor and where the creditor incurs a cost as a direct result of the early repayment being made at the specific time that it was made. The creditor must be able to demonstrate this.
  • The early repayment must be in excess of £8,000 or £8,000 in a period of 12 months. In the latter case, though, only where the £8,000 figure is exceeded and only upon the repayment which takes the combined amount of early repayment over that figure. If the early repayment is made with a year or more left on the credit agreement, compensation cannot be more than 1% of the total early repayment; if there is less than a year remaining, compensation cannot be more than 0.5% of the remaining sum.