Early Loan Repayment
Paying off your loan early can save your company money - sometimes a lot of it. This is because FSCharter uses an amortised loan system, where interest is calculated on the remaining balance each payment cycle.
How Loan Payments Work
When you take out a loan, you agree to pay it back over a set number of payment cycles (your term). Each payment cycle, your instalment covers two things:
Interest – a percentage of the remaining loan balance.
Principal – the actual amount you borrowed.
At the start, your balance is large, so interest is higher and principal repayment is smaller. As the balance falls, the interest portion shrinks, and more of each payment goes towards principal. This is called amortisation.
Why Early Repayments Save Money
Because interest is based on the current balance, if you reduce that balance sooner, you’ll pay less interest in all future cycles.
Even a small lump-sum payment can have a big impact over the life of the loan.
Example
Let’s say you borrow 50 million at 10% interest over 10 cycles:
Without early repayment – you make the same payment each cycle, finishing in cycle 10.
With a 10 million lump sum at cycle 3 – your balance drops faster, you finish the loan several cycles earlier, and you pay much less interest overall.
Visual Example
Cycle | Payment | Interest | Principal | Balance (No Early Repay) | Balance (With Early Repay) |
|---|---|---|---|---|---|
1 | 5.5 M | 0.89 M | 4.61 M | 45.39 M | 45.39 M |
2 | 5.5 M | 0.80 M | 4.70 M | 40.69 M | 40.69 M |
3 | 5.5 M | 0.72 M | 4.78 M | 35.91 M | 25.91 M (after 10 M lump sum) |
4 | 5.5 M | 0.63 M | 4.87 M | 31.04 M | 21.04 M |
With early repayment, future interest is calculated on a much smaller balance, so you save money and clear the loan sooner.
Things to Keep in Mind
Partial early repayments reduce your balance and shorten your term or lower your total cost.
Full early repayment clears the balance immediately, so no further interest is charged.
You can make early repayments at any time during the loan term.
The earlier you make the extra payment, the more interest you save.
If you have spare funds, consider making an early repayment — the interest savings can be significant over the lifetime of the loan.