Periodic rate
r = APR ÷ payments per yearThe entered APR is split into 12, 26 or 52 equal periodic rates for this simplified illustration.
Early Loan Settlement · Methodology
How the calculation works
Estimate the balance and cash-flow effect of settling a standard reducing-balance consumer loan on a selected future date.
Return to calculatorIncluded
- An outstanding balance and APR
- Monthly, fortnightly or weekly repayments
- A remaining contractual term
- An optional actual regular payment
- A selected settlement date
- A user-entered settlement fee, rebate or other adjustment
- A full illustrative repayment schedule
- Remaining interest, net saving and time removed from the schedule
Outside this method
- A binding lender settlement quote
- The statutory rebate calculation required for a particular regulated agreement
- Daily interest and exact contractual payment dates
- Notice and deferment periods
- Changing rates, missed payments, arrears and insurance
- Mortgages and income-contingent UK student loans
- Advice about whether early settlement is suitable
Calculation
Core formulas
Calculated payment
Payment = P × r ÷ [1 − (1 + r)⁻ⁿ]When no actual payment is entered, the calculator derives the constant amount that amortises the opening balance over the remaining periods.
Reducing balance
Bₜ = Bₜ₋₁ + interestₜ − paymentₜInterest is applied first and each payment then reduces interest and capital.
Estimated settlement amount
Balance at selected period + settlement adjustmentA positive adjustment increases the estimate; a negative rebate or credit reduces it.
Remaining interest avoided
Σ scheduled interest after settlement dateThis is the modelled interest that would arise if the remaining schedule continued.
Net saving after adjustment
Remaining interest avoided − settlement adjustmentThis shows the cash difference before allowing for alternative uses of the settlement money.
Timing convention
When cash flows occur
The selected date is converted to the nearest repayment period using an average 365.2425-day year. The model does not know the contractual payment day. Interest is charged and the regular payment is made once in each modelled period.
Limitations
What the result cannot establish
- The Consumer Credit Act and the Consumer Credit (Early Settlement) Regulations can require a rebate of credit charges, but this calculator does not reproduce the agreement-specific statutory calculation.
- A lender may calculate interest daily and apply contractual dates, notice, deferment, charges, rebates and rounding that change the figure.
- APR is a comparison measure; dividing it equally by payment frequency is a transparent simplification and may not match the lender’s effective periodic rate.
- An entered payment that differs from the derived amortising amount can extend or shorten the schedule.
- The lender’s dated settlement quotation and agreement govern the amount required.
Reference tests
Numerical checks
| Case | Inputs | Expected result |
|---|---|---|
| Zero-rate loan | £12,000 balance; 0% APR; 48 monthly payments | £250 calculated monthly payment and no interest avoided |
| Immediate settlement | £12,000 balance; settlement today; £0 adjustment | £12,000 estimated settlement before lender-specific calculations |
| Positive fee | £12,000 balance; settlement today; £100 adjustment | £12,100 estimate and net saving reduced by £100 |
| Non-amortising payment | Payment no higher than the interest charged in the first period | Warning that the entered payment does not reduce the balance |
Evidence
Sources
Consumer Credit Act 1974 — section 94: right to complete payments ahead of time Consumer Credit Act 1974 — section 95: rebate on early settlement Consumer Credit (Early Settlement) Regulations 2004 — regulation 4 Consumer Credit (Early Settlement) Regulations 2004 — calculation schedule FCA — Annual percentage rate (APR)