Loans – different types


There are a number of different situations where you may wish to settle a loan prematurely or be forced to do so. This article should try to take up a little bit of what applies to the different loan types.

One thing that you can say is that you can always redeem a loan if you wish. What may be the difference is whether this costs something or not, positive enough it usually costs nothing at all.



If we start with the smallest loans, these are micro loans and these are quite simple in this aspect. It costs you nothing to repay a loan of this type in advance the issue is most if it gives something or if you have time to pay it off before the term expires.

If you have borrowed money in this form, it is quite likely that the maturity is only 30 days, which does not leave much room for time. If you have taken a longer micro loan of 60 or 90 days, for example, it will be worth solving it even when you look at cost. If you can pay off the loan after one month, you will for example save the interest cost for the other months.

Private loans / Blank loans

Private loans / Blank loans

In the same way that it does not cost anything to settle a micro loan, it also costs nothing to pay off a private loan early. Private loans usually range between USD 10,000 – 350,000, so it can be quite a lot of money saved if the loan is repaid early. If you borrow USD 200,000 with 8% interest for 10 years, the interest cost will be between USD 80,000 – 90,000, depending on whether it is straight amortization or annuity. Thus, it goes without saying that there is a lot of money to be saved if a few years’ interest costs can be avoided.

Just contact your lender and tell them you want to pay off your loan. They will then tell you how to go about accomplishing this. Normally, you only need to deposit money in a certain way and it will all be resolved.

Mortgage loans

Mortgage loans

If previously it was only possible to redeem their loan without having to take into account anything special, then the other rules for a mortgage loan apply. If we first take this with two to settle a loan, it can arise here as it is the question of a loan where the home is secured. Should you therefore sell the home, the loan must be repaid no matter what. If you buy a new home, there may be an opportunity to transfer the loan to this home if you use the same lender. Otherwise, the loan must be redeemed as it is not possible to have a secured loan where you no longer own the mortgage.

Furthermore, when it comes to mortgages, it depends on how you have done with the fixing of the interest rate. If you have chosen what is called a variable loan, which is really a loan where the interest has only been tied up for three months, you may be happy if you are going to settle the loan. Then it normally costs nothing at all to repay the borrowed money.

If the loan is instead linked to one or more years, you can expect to pay something called interest rate compensation. This is a reimbursement that will cover the cost of your loan that the lender will keep even after you repay the money.

Mortgages are often large but have a low interest rate, which is why it is not always best to solve them prematurely financially. As mentioned, it can be a constraint and then there is nothing to consider but otherwise the recommendation is to first of all make sure to settle any other debts that exist. If you do not have one, it is probably smart to pay back the loan if it is movable, it is bound, it will be difficult to say in advance whether it pays off or not. Then contact the lender to find out what it would cost you. Then it is easy to make a decision based on what you think is best for your finances.

Other loans with collateral

The most common type of loan we have not taken up here is car loan of some kind. It can be money lent to a car, motorcycle, motorhome or something similar. After all, these loans have collateral in the form of the vehicle, which means that they must be redeemed if this mortgage is sold. But besides that, it is normally no problem at all to pay off the loan early. You usually don’t have to pay anything at all.

Pay off part

One thing that is important to remember is that there are no rules that say that the entire debt must be repaid simultaneously. For example, if you have a mortgage loan of USD 1 million, you can easily make an extra payment of USD 10,000. However, the same rules still apply with interest rate compensation, etc. If you make extra repayments a little now and then, this is better if you look at the total cost of the loan than first saving the entire sum together.