I’ve Got a High Interest Loan… Should I Overpay or Save Instead?

It’s a question we hear all the time.

You’re making your minimum payments, you’ve found an extra £100 a month, you want to do the “right” thing.

But what actually makes more sense? Overpaying your high-interest loan now, or saving that money and paying it off in a lump sum later?

A member of our community shared a dilemma with us on this week’s podcast:

She has a £13,000 personal loan at 18.9% interest, with a £382 minimum monthly payment. She wants to become debt-free by 2026/27 and is wondering whether that extra £100 a month should go straight to the loan, or into savings instead.

First: Understand What High Interest Really Means

An 18.9% interest rate is high.

That means for every £100 you owe, nearly £19 per year is being added in interest (before repayments are applied).

Most savings accounts currently pay significantly less than that. Even if you found a strong savings rate, it is very unlikely to beat 18.9%.

So mathematically, overpaying a loan at that rate is almost always going to save you more money than earning interest in a savings account.

This is because loan interest compounds against you, while savings interest works for you and at 18.9%, the debt is “growing” faster than your savings would.

Will It Change the End Date?

In most cases, yes.

When you overpay a loan:

• You reduce the balance faster.
• Less interest is charged going forward.
• The loan either ends earlier, or the total interest paid reduces.

But it depends on your lender. Some lenders reduce your term while others reduce your monthly payment unless you specifically ask for the term to stay the same.

If your goal is to clear it earlier, you may need to tell them explicitly that you want overpayments to shorten the term, not reduce payments.

So Should You Always Overpay?

Almost always… with one exception. If you don’t have an emergency fund.

If that extra £100 is your only buffer, and you have no savings at all, putting every spare pound into the loan could leave you vulnerable. One unexpected bill could push you back onto credit.

This is where The Money Playbook comes in.

If you’re in debt, you’re likely in the Survive stage. That means:

1. Know your numbers.
2. Create a budget that works.
3. Build a small emergency buffer (even £500–£1,000).
4. Then aggressively tackle high-interest debt.

Once you have that buffer, overpaying an 18.9% loan is usually the most financially efficient move.

What About Saving and Paying a Lump Sum?

Emotionally, this can feel safer. You see the money building up.

But mathematically, unless your savings rate beats 18.9%, you are losing money by waiting.

The only reason to do this would be:

• You are building your emergency fund.
• Or your lender applies overpayments in a way that makes lump sums more effective (rare, but worth checking).

At 18.9%, your debt is expensive. If you have even a small emergency buffer in place, sending that extra £100 straight to the loan will almost certainly save you more in the long run and get you debt-free sooner.

It comes from focusing on the stage you’re in, building stability, and then moving with intention. And if you’re confused about how your specific loan works, call the lender. Ask how overpayments are applied, whether the term reduces, what your settlement figure would be.

Want to hear more on what we had to say? Listen to the full podcast episode here.🎙️