Early Repayment and Exit Fees on Personal Loans: What's Allowed in Australia
Understand the rules around early repayment and exit fees on personal loans in Australia, including when lenders can charge them and how to avoid them.
Can Lenders Charge Early Repayment Fees?
When you pay off a personal loan before the agreed term ends, lenders in Australia may charge an early repayment fee. However, these fees are only allowed under certain conditions. The National Consumer Credit Protection Act 2009 (NCCP) sets out rules on when early termination fees can be imposed.
When Are Early Repayment Fees Permitted?
Lenders are allowed to charge an early repayment fee if they incur a loss as a result of you paying out the loan early. The fee must be reasonable and must reflect the actual cost the lender suffers, such as loss of interest income. The exact amount must be disclosed in the loan contract before you sign.
What About Exit Fees?
Exit fees are sometimes charged when you close a loan account. For personal loans, exit fees are regulated, and lenders may only charge them if they are reasonable and disclosed upfront. In some cases, exit fees are prohibited, especially if the loan is a credit contract under the National Consumer Credit Protection Act.
How to Avoid Early Repayment Fees
Before signing a loan, check the contract for any early repayment or exit fees. Compare loan products that either don’t charge these fees or charge a minimal amount. If you’re planning to pay your loan off early, choose a loan with no early repayment fee.
What If You’re Charged Unfairly?
If you believe an early repayment fee is unfair or not allowed, you can raise a complaint with the lender first. If that doesn’t resolve the issue, you can lodge a complaint with the Australian Financial Complaints Authority (AFCA) or your state’s fair trading authority.