Break Costs

Break Costs refer to charges or penalties incurred when you decide to pay out the full amount of a loan before the fixed term is over. For example, your bank will charge you a break cost when you pay off a three-year loan within one year. This is to compensate for economic losses on your lender's part as a result of your early payout. For one thing, they will stop earning interest and annual fees once you break the agreement. Break costs usually apply to fixed rate home and personal loans.