Break fees and early repayment charges

Why break fees exist

A lender prices a loan expecting it to run its full term. When you repay early, they lose some of the interest they'd planned on and incur the admin of closing the account. New Zealand's credit law, the CCCFA, lets them recover a reasonable estimate of that loss and cost, and no more. A break fee is compensation, not punishment; the law doesn't allow lenders to fine you for leaving.

In practice, the range is wide. Plenty of NZ car loans charge only a modest admin fee, or nothing at all. Some, particularly fixed-rate loans, use a formula that can produce a larger figure. You can't know which yours is by vibes; you know by asking.

One distinction worth keeping clear: the break fee is separate from your balance. The balance is what you'd owe if the loan ran to schedule; the fee is the extra charged for ending it today. Together they make up your payout figure: the single number the whole switching decision hangs on.

How to find yours

1. Read the fees section of your contract. Look for "early repayment", "full prepayment", or "break fee". This tells you the structure: flat fee, formula, or none.
2. Ask your lender for a payout figure. This is the exact dollar amount that clears the loan today, with every fee included, and lenders must provide it when you ask. It usually comes with a validity window of a week or two.
3. Use the payout figure, not the balance. The number on your app or statement is what you owe on schedule; the payout figure is what leaving actually costs. The difference between them is your true exit cost.

The shapes fees come in

• Nothing. Some contracts simply don't charge for early repayment. If that's yours, the switching maths just got simpler.
• A flat admin fee. A fixed dollar amount to cover the cost of closing the loan and releasing the security. Common, modest, and easy to put in the maths.
• A formula-based fee. A calculation approximating the interest the lender loses because the loan ended early. These are more common on fixed-rate loans, tend to be larger when more of the term remains, and shrink as the loan ages. The contract names the method; the payout figure does the arithmetic for you.

How the fee enters the switching maths

The comparison is always the same: total cost of staying versus total cost of switching, break fee included. A worked illustration (invented numbers, illustration only, not a quote):

• Current loan: $150 per week, 156 payments left. Staying costs $23,400 in total.
• A new loan on the same balance and term comes back at $138 per week: $21,528 in total.
• The gap is $1,872 over the remaining term.
• Payout figure shows a $300 break fee, and the new loan has a $250 establishment fee: $550 of switching costs.
• Net position: $1,872 − $550 = $1,322 better off switching, in this illustration.

Same arithmetic, different fee: if that break fee were $1,700 instead of $300, the switching costs total $1,950 (more than the $1,872 gap) and staying put wins. Nothing about the loans changed; the fee alone flipped the answer. That's the entire reason the payout figure comes first. The savings calculator runs this comparison on your own numbers, and whether a real offer beats your loan depends on the lender's assessment of your file.

When a fee kills the deal, and when it doesn't

• Big fee, small gap: if the fee eats most of the saving, staying put is the right answer, or waiting, since formula-based fees shrink as the term runs down.
• Big fee, big gap: a large fee can still be worth paying when the loan is expensive and years remain. Judge the net figure, not the fee in isolation.
• Short time left: with months remaining there's little saving available for any fee to justify. The stay-put signals cover this.

One more angle: most of a loan's interest is paid in its early stretch, so the saving from switching is largest early on, which is also when formula-based fees are largest. The two pull against each other, which is why the net number is the only one worth trusting. How interest actually works explains the mechanics.

Where this sits in the process

Asking for a payout figure commits you to nothing. Lenders provide them routinely (for sales, insurance claims, and refinances alike) and requesting one doesn't flag your account or change your terms. Treat it as gathering a price, because that's all it is.

If you check your options through Leverage, the break-fee picture comes back alongside any offer, so the comparison you're shown is whole-cost against whole-cost. The start-to-finish guide shows where that step sits. The application takes about two minutes and starts with a soft check that doesn't appear on your credit file. If the numbers say stay, you stay, and the only thing you've spent is the asking.

Leverage Finance is a lead-generation referral service, not a lender. All lending decisions, rates, and terms are determined by the lender assessing your application. Nothing on this page is financial advice. It's general information about how refinancing works.