Variable Rate Personal Loans

September 7, 2026
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Variable rate loans offer the highest flexibility in Australia. Because the interest rate moves with the market, lenders generally do not incur a financial loss if you pay the loan off early.

  • Extra Repayments: You can typically make unlimited extra repayments without penalty.
  • Early Exit Fees: Most lenders do not charge break costs or exit fees if you pay out a variable rate loan ahead of schedule.

Fixed Rate Personal Loans

When you take out a fixed-rate loan, the bank essentially borrows that money from the wholesale market at a fixed rate for the duration of your term. If you pay the loan off early, and wholesale interest rates have dropped since you took out the loan, the bank loses money because they can only re-lend your funds at the new, lower rate.

To recover this loss, Australian banks charge an Early Repayment Adjustment (ERA) or Break Cost.

How Break Costs are Calculated

The formula lenders use is complex, but it generally factors in three things:

  1. Your remaining loan balance.
  2. The time remaining on your fixed term.
  3. The difference between the wholesale interest rate when you signed the contract vs. the wholesale rate today.

Important Caveat: If wholesale interest rates have actually increased since you took out your fixed loan, the bank can re-lend your early payout at a higher rate. In this scenario, they suffer no loss, and your break cost could be zero.

The “Prepayment Threshold”

To offer some flexibility, many major Australian banks (like CommBank, Westpac, and St.George) have a “prepayment threshold” for fixed loans. This allows you to make extra repayments up to a specific limit—often between $10,000 and $30,000 over the life of the fixed term—without triggering break costs. However, paying out the entire balance early will usually still trigger a fee.

How to Find Your Exact Break Cost

Before making a lump-sum payment, follow these steps:

  1. Request a Payout Quote: Call your lender and ask for a formal “Early Repayment Adjustment (ERA) quote” or payout figure.
  2. Check the Expiry: Because the wholesale money market changes daily (specifically the Bank Bill Swap Rate), break cost quotes are usually only valid for 24 to 48 hours.

Even if a break fee applies, it is often much lower than the total interest you would pay by letting the loan run its full term.