# lending.overpayment-effect
What a one-off lump-sum overpayment does to a repayment loan, with both of the
options UK lenders offer shown side by side:
- **Reduce the term**: keep paying the same amount; the loan ends sooner.
`reducedTermPayments`, `reducedTermFinalPayment`, `reducedTermInterest`,
and `paymentsSaved`.
- **Reduce the payment**: keep the end date; each payment is recalculated on
the lower balance over the remaining term. `reducedPayment`,
`reducedPaymentInterest`.
Both are compared with a baseline: carrying on at the current payment as if
nothing had been overpaid (`baselinePayments`, `baselineInterest`). Interest
saved is baseline minus option. Reducing the term always saves at least as
much interest as reducing the payment, because the balance falls faster;
reducing the payment gives cash-flow room instead. Which to choose is the
borrower's, which is why both are returned.
## Conventions
The overpayment is applied just after a regular payment, to the balance that
payment left, and takes effect from the next period. Every period is built
exactly as in lending.amortisation-schedule: interest on the opening balance
rounded half-up to a whole minor unit, the payment covers interest first, and
the last payment of the term (or the one that would overshoot) is exactly what
is owed, so no option ever ends with a stray penny outstanding.
The baseline and the reduce-the-term option pay the `payment` you pass; it
need not be the level payment (a borrower who already pays extra each month
is modelled by passing what they pay). The reduce-the-payment option
recalculates with lending.loan-payment and your rounding `mode`.
## What it does not do
- Early repayment charges. Many fixed-rate mortgages charge 1-5% of an
overpayment above an annual allowance (often 10% of the balance); take that
off before calling, or compare it with the interest saved.
- Overpaying the whole balance. That is an early settlement: the lender's
settlement figure (for regulated consumer credit, lending.early-settlement)
is the right tool, so an overpayment of the whole balance is an error.
- Rate changes, daily interest or payment holidays.
## Errors
A payment that does not cover the first period's interest never repays and is
refused. Currencies must match. The rate, frequency and remaining term are
checked as in lending.loan-payment.
## Before you rely on this
**Not professional advice.** This capability calculates lending figures from published rules. It is a software component for developers, not financial advice. Rules change and every rate here has an effective date. Check that the dates cover your case. Verify results against the official sources listed above, and have a consumer-credit compliance specialist review how you use it, before anyone relies on the output. Provided "as is" under its licence, without warranty.
**Unreviewed.** This capability's implementations agree in every language and pass its published test vectors, which were worked out from the official sources cited. But no qualified consumer-credit compliance specialist has yet checked those vectors, or confirmed that the capability covers the cases it claims. Treat it as a draft. Do not use it for real people, money or decisions without your own expert review. Once a qualified reviewer signs off, this notice is replaced with their name, qualification and the date. Each new version needs fresh sign-off.
1.0.1 marks it unreviewed. The code and the tests are unchanged.