Bank applied early repayment interest charge correctly

Early repayment charges,
Roland took out a $1.5 million loan to buy a commercial property. The loan’s interest rate was fixed for five years. When Roland sold the property four years later and repaid the loan, he incurred an early repayment charge of $30,000.
December 2019

Roland said the charge was unfair, excessive and incorrectly calculated. The bank replied that it had calculated the charge according to the terms and conditions of the loan agreement, and that it had checked the calculation thoroughly before including it in the settlement statement sent to his lawyer.

Our investigation

In considering a complaint about an early repayment charge, we consider:

  • whether the charge was disclosed to the customer,
  • whether the charge has been made in accordance with the contract, and
  • if the loan is a consumer loan and therefore regulated by the Credit Contract & Consumer Finance Act, whether the break cost exceeded a reasonable estimate of the lender’s loss arising from early repayment.

As Roland’s loan was a business loan, the Act did not apply. 

However, we found the bank had disclosed the early repayment charge in the loan contract Roland had signed and had correctly followed the calculation method set out in the loan agreement, and had used wholesale rates in its calculations that accorded with the Reserve Bank’s published swap rates.


We could not uphold Roland’s complaint.

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