Why the payout figure is the number that matters
Paying a loan off early sounds like it should always save money, and with many loans priced on a reducing balance it does. But business finance comes in many shapes. Some short-term loans are priced as a fixed total cost from day one, which means the lender expects that amount whether you take twelve months or six. Others carry break costs on fixed-rate periods or a flat early repayment fee. The marketing rarely makes this clear.
The way to cut through it is to ask the lender for a written payout figure for a specific date and compare it with what you would pay if you simply kept making repayments. This calculator does that comparison. It multiplies the remaining repayments by the repayment amount, adds any other fees you would still pay, and subtracts the payout figure. The difference is your real saving.
When paying out early makes sense
- The saving is meaningful compared with what that cash could otherwise do inside the business.
- You are not leaving the business short of working capital by using the cash.
- A cheaper facility is available and the saving outweighs its fees. See our guide to consolidating business debt.
Check before you sign the next loan
The best time to think about early payout is before you take a loan. Ask how the payout is calculated, whether any discount applies to the remaining cost and what fees apply. Our guide to early repayment and payout figures lists the questions to ask, and the offer review checklist covers the rest of the contract.
If you are weighing up a refinance to pay out an expensive facility, you can make one enquiry to see what might be available. Enquiring does not involve a credit check, one lending partner reviews it and a person will call. Include the payout figure and the repayments left in your enquiry so the comparison is accurate.
Frequently asked questions
Will I always save by paying a business loan off early?
Not always. Some business loans, particularly those priced with a fixed total cost, charge most or all of the remaining cost even if you repay early. Others charge break costs or early repayment fees. The only way to know is to get a written payout figure and compare it with the repayments left.
What is a payout figure?
It is the amount the lender will accept to close the loan on a particular date, including any fees or break costs. Lenders issue payout figures on request, usually valid for a set number of days.
Should I refinance to pay out a loan early?
Sometimes. If a new facility costs less over the remaining period than the payout saves, refinancing can make sense. Compare the full cost of the new loan, including its fees, with the saving shown here.
Where do I find the number of repayments left?
Check your loan statement or online account, or ask the lender. Multiply the remaining number of repayments by the repayment amount to get the total still to pay under the contract.
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