An early redemption penalty is a type of penalty that you will need to pay in the event you satisfy the lending, such as a loan or mortgage, prematurely. When looking into credit options, it is reasonable to take a close look at the early redemption clause. Then you will understand the amount of money you might required to pay in the event you decide to settle the loan or mortgage before the end the full term. Prior to reading this article, here is a range of definitions you might find helpful. An arrangement fee is a sum of money passed on to you by a loan or mortgage provider or broker when you take out lending such as a mortgage or loan.

This is a means to recover their administrative expenses in setting up the borrowing. A few loan companies will present this free of charge trying to entice new customers. A tie in period on a mortgage loan is when you are bound to the mortgage company for a specified term. The way it works is that the mortgage company will present you with a good deal, for instance, a fixed rate mortgage loan for the first two years. However, you may be linked to the mortgage company for a specified amount of time. following, for example a year, during which you will have to pay their standard variable rate.

This is a way for mortgage companies to recuperate the amount of money the gave up in giving you a great deal, for the first two years. In the event you wish to swap mortgage companies in the midst of the 'tie in' agreement, you will be charged a penalty which might amount to thousands of pounds. When looking at borrowing money, you'll no doubt be aware of the old saying 'Shop around for the best deal'. However, while shopping around is the best thing you can do to find the right finance deal, don't just look at the annual percentage rate (APR) on the loan - otherwise you could end up being ripped off by an early redemption penalty. An early redemption charge (ERC) has many different names - early redemption clause; early repayment penalty; early termination penalty; early redemption fee; financial penalty; and, redemption charge/penalty. However, what it is remains the same.

Basically, should you repay your loan early, you may find that you have to pay an early repayment penalty. If you have a personal loan, the charge may be typically one or two month's worth of interest. However, it is for a mortgage, this figure could literally run in to thousands of pounds, depending on your mortgage agreement.

With the latter, many mortgage companies offer special deals for a set period of your mortgage - for example, for the first two years. So for two years, you are getting a really good deal, probably at discounted rates. However, when it gets to year three and your lender wacks up their interest rates, naturally you will want to look around for another mortgage deal. However, if you look at your mortgage agreement, you may see that you are tied to the lender for, say, four years. So, in that way, he can make a lot of his money back from you in years three and four.

If you decide to switch to a better deal in year three or four, then you may face an early redemption penalty. So, how can you stop getting ripped off by lenders charging this fee? First of all, don't take out any loan agreement until you have thoroughly checked out whether there is an early redemption fee. Any early termination fees should be explained to you before you take out a mortgage. If you are not made aware of any such fees before you agree to the loan, then you should seek legal advice as this is miss-selling .

However, if you are made aware of the charge and it seems like a reasonable fee and you are happy with the rest of the deal, then go for it. If it doesn't look right or the charges look a bit unrealistic, then do not proceed. There are plenty of lenders out there who do give personal loans and mortgages without any 'tie-ins'.

So, shop around.

James Miller has a lot of experience writing excellent and useful articles not only related to cheapest mortgages and debt consolidation secured loans but also in some manner relevant to loan arrears.