What is an early repayment charge?
An early repayment charge, an ERC, is the sum a lender charges if a loan is repaid, in whole or in part, before a date set in the loan agreement. It compensates the lender for interest it expected to earn and, on a fixed-rate loan, for the cost of the funding it arranged to match the fixed period. It is usually expressed as a percentage of the amount repaid, often stepping down year by year, and it applies to a sale, a refinance or a lump-sum overpayment above any allowance the agreement gives.
It is one of three devices that do a similar job and are easily confused: the early repayment charge, the exit fee and the minimum interest period. Each lender publishes which it uses on which product, and the loan agreement is the document that settles it.
Where early repayment charges appear
Most often on commercial mortgages with a fixed rate or an initial discounted period, where the charge runs for the length of that period and then falls away. On term loans, where it is sometimes replaced by a rule on how much of the remaining interest is rebated. On asset finance, where a settlement figure is calculated under the agreement’s own formula. And on bridging, where the usual device is a minimum interest period rather than a charge on early repayment, because the lender wants the loan repaid as soon as the exit allows.
How it is calculated
The agreement sets the method. The commonest is a percentage of the sum repaid, with the percentage falling each year of the fixed or initial period. Some agreements charge a number of months’ interest instead. Some allow an overpayment of a stated share of the balance each year without charge. The lender’s settlement statement shows the capital balance, the interest to the settlement date and the charge, and a borrower who asks for one before deciding to sell or refinance knows the cost before committing to it.
Exit fees and minimum interest periods
An exit fee is charged whenever the loan is repaid, early or on time, and is common on bridging and some commercial mortgages; it is a cost of leaving rather than a penalty for leaving early. A minimum interest period means the lender earns interest for at least a stated number of months even if the loan is repaid sooner, so a bridge repaid in the second month still pays the minimum. Reading which of the three a product carries, and for how long, is the whole of the exercise: the headline rate on its own says nothing about what it costs to leave.
What to check before signing
How long the charge runs and how it steps down. Whether a partial repayment is allowed without charge, and up to what share of the balance. Whether the charge applies on a sale as well as a refinance. Whether the loan can be carried to a new property, which some commercial mortgages allow, so that a move does not trigger the charge. And on a fixed-rate loan, what happens at the end of the fixed period, because the charge falling away and the rate reverting to variable happen on the same day. We set out the early repayment terms each lender provides beside its rate and fees, so you can compare them.
We have access to a range of UK commercial finance lenders through our principal, White Rose Finance Group Limited. For property-secured lending we work with UK limited companies and LLPs only, for business and commercial purposes. Enquiring does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file.
Frequently asked questions
Can an early repayment charge be avoided?
By waiting until the charge period ends, by using any overpayment allowance the agreement gives, or by carrying the loan to a new property where the lender allows it. Otherwise the charge is a term of the contract the borrower signed.
Is an early repayment charge the same as an exit fee?
No. An exit fee is charged on repayment whenever it happens; an early repayment charge applies only before a date in the agreement. A loan can carry both.
Do bridging loans have early repayment charges?
Usually not, because the lender wants the loan repaid as soon as the exit allows. Most carry a minimum interest period instead, and some an exit fee. Each lender publishes which.
Is a regulated mortgage different?
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. If you have a complaint, our complaints page explains how it is handled. We do not arrange regulated mortgage contracts, including properties for your own use, and the rules that apply to those are not described here.
How is CapExpand paid?
We will receive commission from lenders. On some cases we also charge a fee, which we set out in writing and agree with you before you proceed.
More funding questions answered
- What is a bridging loan?Short-term borrowing secured on property, repaid in one sum from a defined exit: the four things that define it, what it is for, and what it is not.
- What is asset finance?Borrowing to acquire or release value from equipment, vehicles or machinery where the asset is the security: hire purchase, leases and refinance, and what defines each.
- What is invoice finance?Borrowing against unpaid invoices: the advance, the balance on payment, factoring against discounting, recourse against non-recourse, and what defines it.
- What is a commercial loan?Lending to a business for business purposes, as distinct from consumer lending: what the term covers, the main kinds, and what a commercial loan agreement contains.
- What is development finance?A short-term facility that funds a site and the build on it, drawn in stages against certified work and repaid from the sale or refinance of the finished scheme.
- What documents do I need for a business loan?What lenders ask for by product, why some skip the accounts, and what to have ready on day one.
Refinancing before the charge period ends?
The balance, the charge in your agreement and the date it steps down are enough for us to set out what each lender whose criteria the case meets provides, before anything is sent anywhere.
Sources
Checked 26 October 2026. This page explains how early repayment terms are expressed; each lender publishes its own, and nothing on this page is a quote.
Important information
Think carefully before borrowing. Property or other assets offered as security may be at risk if you cannot keep up repayments.
CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We are a broker, not a lender. We work with UK limited companies and LLPs only, for business and commercial purposes. We do not provide financial advice.