Quick answer
An exit fee is a charge for paying out or closing a loan, usually when you repay early but sometimes at the end of the term too. Exit fees were banned on new Australian home loans from 1 July 2011, but that ban sits in consumer credit law, so business loans can still carry them. Check the payout section of any business loan offer before you sign.
Key points
- A charge for leaving a loan, most often when you repay ahead of schedule
- The 2011 ban covers consumer home loans, not loans taken for business purposes
- Different from break costs, discharge fees and minimum interest periods, though all can apply on payout
- Matters most when you plan to refinance or sell within the term
Most borrowers only meet the exit fee when they try to leave. The refinance is lined up, the property has sold, or a big customer finally paid, and the payout letter arrives with a line nobody remembers agreeing to. Knowing what to look for at the offer stage avoids that surprise.
Why business loans still have them
Many Australians assume exit fees disappeared years ago. For home loans they largely did: the Federal Government banned them on new home loans from 1 July 2011, through the regulations under the National Credit Code, and gave ASIC power to act against fees that were simply renamed.
That protection belongs to consumer credit. A loan used mainly for business purposes isn’t regulated by the National Credit Code, even when it’s secured over the family home. So a second mortgage, caveat loan or term loan for the business can lawfully include an exit fee, provided the contract discloses it.
Small business borrowers aren’t left without protection. ASIC’s INFO 211 notes that a borrower should have a real and reasonable chance to get out of a contract without penalty when a lender changes the terms on them, and fees that only arise later can be tested for fairness. But a clearly disclosed exit fee is generally enforceable.
Exit fee or something else?
Several different charges can turn up when you pay out a loan. They’re easy to confuse and they behave very differently.
| Charge | How it works | Triggered by |
|---|---|---|
| Exit fee | A set amount or percentage written into the contract | On early payout, sometimes any payout |
| Break costs | The lender’s loss when a fixed rate is broken | Fixed-rate loans repaid early; can be zero |
| Discharge fee | Admin cost of releasing the mortgage or caveat | Whenever the loan ends |
| Minimum interest period | Interest is owed for an agreed number of months, however early you leave | Common on short-term private loans |
| Fixed payback amount | The total owing doesn’t drop if you repay early | Some short-term and factor-rate loans |
When comparing offers, add up everything that would be payable if you left at the date you realistically expect to, not just the line labelled “exit fee”.
Worked example: selling sooner than planned
A Cairns tour operator borrows $80k on a 12-month private loan secured by an investment unit, planning to repay when the unit sells. The offer includes a three-month minimum interest period, a $1,500 exit fee if repaid in the first six months, and a $400 discharge fee.
The unit sells in month two. At payout, the operator owes the $80k, three months of interest (not two), the $1,500 exit fee and the $400 discharge fee. Selling a month later would have cost the same interest; selling after month six would have avoided the $1,500 altogether. Small differences, but they are real dollars, and they show why the payout schedule deserves as much attention as the monthly cost. If you’re about to sign something similar, have us look at it first.
Questions to ask before you sign
- Is there an exit fee, and does it reduce or end after a set period?
- Is there a minimum interest period or a fixed payback amount?
- What would the total payout be at three, six and nine months?
- Are discharge and legal costs on payout extra?
Related reading: establishment fee, early repayment, discharge of mortgage and our loan cost comparison calculator.
Stuck in a loan that’s costly to leave?
Sometimes paying an exit fee is still the cheaper path, because the new loan saves more than the fee costs. Working that out is part of what we do when refinancing a business loan. Start with a brief form; it’s roughly a minute of typing, and lodging it doesn’t run a credit check. There’s no mass distribution of your details to strangers. Someone on our team goes through your figures personally, then rings to discuss them. Include the current payout figure and any fees you know about, so the options we suggest reflect what leaving will actually cost.
Frequently asked questions
Are exit fees legal on business loans in Australia?
Generally, yes. The ban that started on 1 July 2011 applies to consumer home loans regulated by the National Credit Code. Loans taken predominantly for business purposes sit outside that code, so a lender can include an exit fee as long as it's disclosed in the contract and isn't unfair under the small business contract rules.
What's the difference between an exit fee and break costs?
An exit fee is a set charge in the contract. Break costs apply to fixed-rate loans and reflect the lender's actual loss when market rates have moved since you fixed, so they can be large, small or nothing at all depending on timing.
Is a discharge fee an exit fee?
Not really. A discharge fee covers the administrative cost of releasing the security, such as preparing and lodging a mortgage discharge or caveat withdrawal. It's usually a modest amount and is payable whenever the loan ends, early or not.
Can I avoid an exit fee?
The best time is before signing: ask for it to be removed, reduced, or to fall away after a set period. If you already have one, time any refinance for when the fee steps down or expires, and include it in the cost of the new loan.
Do short-term business loans charge exit fees?
Some do, while others achieve a similar result with a minimum interest period or a fixed payback amount that doesn't shrink if you repay early. Ask the lender to show you the exact payout figure at a few different dates.