Your overview of overpayments
What is a loan overpayment?
Having spare cash and deciding how to spend it is one of the nicer problems to have. Whether it’s money left over from your pay or a refund from a recent purchase, it’s up to you how you use it. Could you treat yourself? Boost your savings? What about paying off a bit more of an outstanding loan?
Overpayments may be an option if you’re still repaying a loan. In this guide, we explore what a loan overpayment is, why you might want to do it and more.
What does loan overpayment mean?
A loan overpayment is when you pay back more than your agreed monthly repayment. The scheduled amount should be outlined in any loan agreements you signed, such as a binding mortgage offer for a secured loan.
You may choose to overpay a loan for various reasons – for example, if you’ve got more money available each month than you did when you took out the loan. You may also just have some spare cash left over unexpectedly.
How do overpayments work?
Overpaying is always your choice as the borrower – lenders legally can’t ask you to do this.
Most lenders allow you to make overpayments as a one-off lump sum or by regular payments throughout the year. It’s important to remember that you’ll still need to make regular monthly repayments going forward.
For most loan types and lenders, an overpayment is taken off the principal balance (the amount you owe) to reduce the overall loan term. This is how it works for a secured loan overpayment with Evolution Money. In some cases, a lender may give you the option to reduce your monthly repayments without changing the loan term.
What are the benefits of loan overpayments?
If you have the funds available to overpay on your loan repayment, this could help you:
- Reduce the amount of interest you pay over the loan term by reducing the principal balance
- Clear your debt sooner by making the same monthly repayments over a shorter loan term
Are there any downsides to overpaying a loan?
An overpayment should always be affordable and the right option for you. Before choosing to make one, it’s worth considering:
- You’ll have less cash to hand which could be used to cover something else like an expected bill
- Some lenders may charge fees if you overpay over a certain amount (like with some mortgages)
Can I make a loan overpayment?
Overpaying a loan may be an option if you have a mortgage, a second or third charge mortgage (secured loan), or a personal (unsecured) loan. This all depends on what your lender allows and the terms of the agreement you entered.
With unsecured loans taken out after 1 February 2011, you can make partial overpayments up to £8,000 in any 12-month period without charges or penalties. Overpayments for some secured loans are possible without penalty, but not all. It’s worth checking what your lender allows before doing anything.
Here at Evolution Money, we give all customers the option to make secured loan overpayments with no additional charges. Your loan must be fully up to date with no unpaid deferrals and the overpayment must not exceed the amount you owe.
How do I make an overpayment on a loan?
Different lenders have their own processes. Some banks and institutions allow overpayments to be made online or via their website or app. Other lenders may ask you to get in touch over the phone.
To make an overpayment on your secured loan with Evolution Money, the process looks like this:
- Call us on 0161 814 9975 and let us know you want to make an overpayment
- We’ll ask you a few questions for compliance purposes and to make sure it’s the right option for you.
- If you’re eligible to make an overpayment, we’ll give you a quote on how much interest you could save. This is to help you make an informed decision in your best interests.
- We can take payment over the phone or give you the details to make a bank transfer.
- Once we’ve received the overpayment, the amount will be taken off the principal balance and your loan term will be adjusted accordingly.
More about Evolution Money
If you don’t already know us – hi, we’re Evolution Money. We offer secured loans for homeowners from £5,000 to £100,000. Whether you’re consolidating your debts, making home improvements or buying a new car, we like to think we could help.
To get started, check your eligibility today.
You can also head over to our help and advice hub for more guides on loans and managing your money.
Representative 22.93% APRC variable.
For a typical loan of £26,600 over 180 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £484.00. This includes a Product Fee of £2,660.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £87,030.00. Annual Interest Rates range between 11.7% to 46.5% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
