Settling a loan early: what do I pay and how do I ask?

You can settle a loan early at any time. The settlement amount is what you still owe on the loan, plus interest and fees up to the day you settle. You don’t pay interest or monthly fees for the months that no longer exist. At RandLeaf there is no early settlement penalty.

Your right to settle

Section 125 of the National Credit Act lets a consumer settle a credit agreement at any time, with or without notice. The amount is the unpaid principal plus the interest, fees and charges due up to the settlement date. The Act allows an extra early-termination charge only on “large agreements” as it defines them, such as most home loans. Small personal and short-term loans don’t carry one.

What a settlement amount includes

Principal still owed

The part of the amount you borrowed that your repayments haven’t covered yet.

Interest to the settlement date

For the current period only. At RandLeaf that is 2% of the principal still owed for the month you settle in.

Fees due to that date

The service fee for the current month, and any part of the initiation fee not yet paid. RandLeaf splits the initiation fee across the repayments, so the unpaid shares are included.

Not included

Interest and monthly fees for future months, and any penalty.

Worked example: R5 000 over six months

Take a first RandLeaf instalment loan of R5 000 over 6 months. The regular repayment is R967.63. After two repayments you get paid a bonus and want to settle on the date of the third repayment, instead of making the last four.

The four remaining repayments add up to R3 870.51. Settling costs R3 646.87, so you save R223.64: the interest and service fees for months 4 to 6.

The earlier you settle, the more you save

The saving comes from the months you skip, so it shrinks as the loan runs down. On the same R5 000 loan:

Settling on the date of the last repayment saves nothing, because the last repayment already is the settlement amount.

The table also shows why the saving is modest on a short loan: most of the cost of a small loan is the initiation fee, which is charged once whether you settle early or not. On longer loans, where interest builds up over many months, settling early makes a bigger difference.

How to ask for a settlement figure

1. Contact the lender through its official channel with your ID number and the date you want to settle. Our phone, email and support hours are not yet published.
2. Get the figure in writing, with the date it is valid until. Interest keeps running after that date, so an old figure may be too low. RandLeaf’s validity period: not yet published.
3. Pay the exact amount into the account named in your agreement or the settlement letter. Never pay into an account given in a message you didn’t ask for.
4. Check the debit order stops. Once the payment clears, the remaining collections should be cancelled. If one is collected anyway, ask for a refund.
5. Ask for a paid-up letter and keep it. About paid-up letters.

Paying extra instead of settling

You don’t have to settle the whole loan to save. A payment on top of your normal repayment reduces the principal you owe, and interest is worked out on that lower amount from then on. On a RandLeaf loan, contact us before you pay extra so the payment is allocated to the loan correctly and your remaining repayments are recalculated. Paying extra into an account without telling the lender can leave the money sitting unallocated.

Special cases

• You are under debt review. Settlement is arranged through your debt counsellor, who deals with your creditors on your behalf.
• A debit order is about to run. If a collection is already in progress close to the settlement date, the settlement letter says how it is treated. Don’t cancel a debit order at your bank on your own: ask the lender to stop it once the settlement payment has cleared.
• The figure has expired. Ask for a new one. Paying an old figure can leave a small balance, and a balance means the loan isn’t closed.
• Someone offers to settle your loan for you. A stranger who offers to pay off your loans in return for a fee or a new loan is a common scam. Deal only with your lender directly.

Is settling early always a good idea?

It saves money, but only if paying the lump sum doesn’t leave you short. Keep enough back for essentials and an emergency. Settling one loan with a new, more expensive one is rarely a saving: compare the total cost of both before you do it.

Settling early is reported to the credit bureaus like any settled account, as paid up. It doesn’t count against you. With RandLeaf, a loan you settled early counts as fully repaid for returning-customer purposes. Settling a RandLeaf loan early.