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
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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...