Smart Tips on How to Pay Off a Loan Early

Many Australians look for ways to pay off a loan early to potentially reduce interest costs, improve cash flow, and feel more in control of their finances. Making extra repayments can help you get ahead — but depending on the lender and loan type, paying early may come with conditions or fees. Understanding both the potential benefits and the possible downsides can help you make informed decisions.

In this guide, we cover how to pay off a loan early, how it may affect your credit score, strategies that may help you pay off a personal loan faster, and what to check before you make extra payments. If flexibility matters to you, it’s worth reviewing your lender’s terms and your loan contract to understand whether extra repayments are allowed and whether fees could apply.

Understanding early loan repayment

Early repayment means paying more than your minimum required instalment or paying out your loan in full before the end of the term.

What are early repayment or prepayment penalties?

Some Australian lenders may charge fees for repaying your loan ahead of schedule. These can include:

• Early exit fees
• Early termination fees
• Break costs (more common on fixed-rate home loans)

ASIC’s MoneySmart warns that consumers should always check their loan contract for early repayment conditions before paying ahead¹.

(¹ MoneySmart – “Paying off your mortgage early” and “Personal loans” guidance)

How early repayment works for different loan types

Personal loans
Some lenders allow extra repayments, while others may charge a fee for paying the loan out early. Always check your contract and key facts sheet.

Mortgages

• Variable-rate loans: Often allow extra repayments, but rules can vary by lender and product.
• Fixed-rate loans: Commonly include break costs because the lender may have locked in funding at a fixed price.

Examples of early repayment savings

Example 1 – Adding an extra monthly repayment

• Loan amount: $10,000
• Rate: 12% p.a.
• Term: 36 months
• Minimum repayment: ~$332/month

If you pay an extra $50 per month, you may shorten the loan term and reduce the total interest paid — depending on your loan’s features, how interest is calculated, and whether any fees apply.

Example 2 – Early payout
If you repay a remaining balance of $6,000 two years early at 12% interest, you may reduce the amount of interest you would otherwise pay over the remaining term — assuming no early exit fees apply and your contract allows early payout on those terms.

Will paying off a loan early affect your credit score?

Australian credit reporting and scoring differs from the U.S., but credit bureaus may consider factors such as:

1. Your repayment history

This is a major factor. Paying on time and meeting repayment obligations can support your credit profile.

2. Credit account age

Closing a loan may reduce the length of your active credit history. In some cases, this can result in a small, temporary change, but the impact varies by individual.

3. Credit mix

Having different types of credit (for example, a credit card plus a personal loan) may contribute to your overall profile. Paying off your only instalment loan could reduce credit diversity slightly.

Examples of realistic outcomes

• If you’re applying for a home loan soon: A loan paid off early may reduce your overall liabilities, but lenders will assess your full application and circumstances.
• If you have only one credit account: Your credit score may change when the account closes; the impact differs by person and bureau.
• If you maintain multiple accounts: The overall effect is often limited, but results vary.

For more detail, see:
→ credit score: https://www.credit24.com.au/blog/what-is-a-credit-score

6 smart ways to pay off your loan early

Increasing either your payment amount or frequency can help you repay faster, but it’s important to check your contract for fees, conditions, or limits first.

1. Switch to fortnightly payments

There are 26 fortnights in a year but only 12 months. Paying half your monthly repayment every fortnight can mean you make the equivalent of 13 monthly repayments over a year.

Example:

• Monthly repayment: $2,000
• Fortnightly payment: $1,000

Annual paid amount:

• $1,000 × 26 = $26,000
• Instead of $24,000 — without necessarily feeling like a large increase (depending on your budget).

How to switch:

• Contact your lender or update your repayment schedule online.
• Align repayments with your income cycle.
• Confirm whether any administration fees apply for switching.

2. Make extra repayments

Extra repayments can reduce your balance faster, which may lower the interest charged over time.

Example:
A $10,000 loan at 12% interest — adding $50/month may cut months off your loan and reduce interest paid, depending on your loan terms and how interest is calculated.

Possible sources for extra repayments:

• Tax refunds
• Overtime or weekend shifts
• Selling unused items
• Annual bonuses

Setting up automatic additional repayments can help you stay consistent.

3. Round up your payments

Rounding up can help reduce your loan faster without needing a large extra payment.

Example:

• Minimum monthly repayment: $273
• Rounded payment: $300
• Extra: $27 per month
• Yearly extra: $324

Over time, this may meaningfully reduce the loan term and total interest, depending on your loan size and terms.

4. Use an offset account (mortgages only)

An offset account can reduce interest by using your savings to “offset” the loan balance².

Example:

• Loan: $400,000
• Offset balance: $50,000
• Interest charged only on: $350,000

(² MoneySmart – “Offset accounts” explanation)

Offset accounts apply to home loans — not unsecured personal loans — but some borrowers use offsets to help manage cash flow and potentially prioritise higher-cost debts.

5. Consider refinancing

Refinancing may be worth exploring if:

• Your credit profile has improved
• You want a lower interest rate or different features
• Your current loan has high fees
• You want to consolidate several smaller debts (learn more about debt consolidation: https://www.credit24.com.au/blog/what-is-debt-consolidation)

Refinancing costs to check:

• New lender establishment fees
• Exit or early repayment fees
• Comparison rate (not just the headline interest rate)
• Settlement or discharge fees

Break-even example:
If refinancing reduces your repayments by $40 per month but costs $240 to switch, it may take around 6 months to break even — assuming all other factors stay the same.

6. Use the debt avalanche method

The debt avalanche focuses on clearing higher-interest debts first while paying minimums on others.

Example debts:

• Credit card: $5,000 at 19%
• Personal loan: $3,000 at 12%
• Store finance: $1,500 at 7%

You’d generally direct extra repayments to the 19% debt first. Once cleared, you may then focus on the 12% debt, then the 7%. This approach can reduce the total interest paid over time compared with paying extra on lower-rate debts first.

What to check before paying off a loan early

Use this checklist before making extra or early payments:

Check your loan contract

• Are extra repayments allowed?
• Are there early payout penalties?
• Is the loan fixed or variable?
• Will switching to fortnightly payments change fees?
• Are redraws available if you need funds later?

Common early repayment fees in Australia

Some lenders may charge early exit or termination fees, which vary by provider and loan type. Always check your loan contract or request a payout figure before repaying early.

ASIC warns that “$0 fee” or “no fee” claims must not hide conditions³ — always read the fine print.

(³ ASIC RG234 – Guidance on avoiding misleading financial claims)

Warning signs

• Vague fee descriptions
• Conditions requiring a minimum term before payouts
• High fixed-rate break costs
• Administration fees for changing repayment frequency

Common early repayment mistakes to avoid

1. Paying early without checking for fees

Some borrowers repay a loan early and then discover a payout fee.
Better: Calculate the total cost first and request a payout figure if needed.

2. Paying off a low-interest loan before a high-interest debt

This may slow your progress overall.
Better: Consider a structured approach like the debt avalanche.

3. Draining your savings to clear the loan

A reduced emergency buffer can increase stress if unexpected costs arise.
Better: Keep a safety buffer where possible.

4. Refinancing without comparing comparison rates

A low headline rate may come with fees that increase the total cost.
Better: Compare the total cost over time, not just the interest rate.

5. Closing your only active credit account right before applying for a mortgage

Closing accounts can affect your credit profile and timing may matter.
Better: If you’re planning a major application, consider the timing and seek independent guidance.

Meet Credit24 — understand your early repayment options

If you’re considering repaying a loan faster, it can help to choose a product with clearly disclosed terms and repayment conditions. When comparing lenders, look for clear information on fees, repayment schedules, and whether extra repayments are permitted.

To learn more about a personal loan, visit: https://www.credit24.com.au/blog/what-is-a-personal-loan

If you’d like to proceed with Credit24, you can Apply now.

Disclaimer
IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839. The information in this article is general in nature and does not consider your objectives, financial situation, or needs. Lending criteria, fees, and charges apply. For product details, eligibility requirements, and full terms and conditions, visit www.credit24.com.au.