Australians are often eager to switch services—whether it’s to chase a better mobile plan, refinance a home loan, or upgrade a business lease. But breaking a contract before its agreed end date can lead to an unwelcome surprise: the early termination fee (ETF). As more providers update their policies in 2025, understanding how ETFs work is crucial for protecting your wallet.
What Is an Early Termination Fee?
An early termination fee is a charge imposed when you end a fixed-term contract before its scheduled completion date. These fees are common across a range of financial products and services, including:
- Home and car loans
- Mobile phone and internet plans
- Energy contracts
- Leases and rental agreements
- Subscription services
Providers use ETFs to recover costs associated with setting up your contract, subsidising devices, or lost interest. In recent years, Australian regulators have pressured companies to make these fees more transparent and fair, but confusion—and bill shock—still lingers.
How Early Termination Fees Work in 2025
With the Australian Competition and Consumer Commission (ACCC) and the Australian Securities & Investments Commission (ASIC) tightening disclosure rules, providers must now clearly outline any ETF before you sign up. Here’s how ETFs typically work in 2025:
- Pro-rata or sliding scale fees: Many providers now reduce the fee based on how far you are into your contract. For example, a $300 fee at the start of a 24-month plan might drop to $50 if you cancel in month 20.
- Device repayments: If your contract included a discounted phone or gadget, you’ll likely pay out the remaining balance if you leave early.
- Loan break costs: Fixed-rate loans may charge a ‘break fee’ if you pay off or refinance early. In 2025, banks are required to show you an upfront calculation method, factoring in current interest rates and the remaining term.
Recent legislative changes mean contracts must spell out these charges in plain English. For example, energy retailers now display potential exit fees on your first bill and in online account dashboards.
Real-World Examples and Policy Updates
1. Home Loans: The RBA’s ongoing rate adjustments in 2025 have seen a surge in Aussies refinancing fixed-rate mortgages. While ‘deferred establishment fees’ are largely banned, fixed loans can still carry break costs if you exit early. One Sydney homeowner, for example, was quoted a $2,400 break fee for refinancing 18 months into a 3-year fixed-rate loan. The fee reflected the lender’s lost interest due to falling rates.
2. Mobile Plans: Major telcos like Telstra and Optus now offer ‘no lock-in’ SIM-only plans, but contracts with bundled devices still carry ETFs. In 2025, a typical ETF includes the remaining handset payments plus a small administration fee. For instance, breaking an iPhone plan 12 months early could mean paying $900 for the phone and a $50 processing fee.
3. Business Asset Finance: SMEs using vehicle or equipment leases may face early termination penalties. Many 2025 contracts allow for early exit if you pay the remaining balance and a flat fee (often 1-2% of the original loan value).
- Tip: Some providers now waive ETFs if you’re switching to another plan within their network, or if you can demonstrate financial hardship.
How to Minimise or Avoid Early Termination Fees
- Check contract terms before signing: Ask for a written breakdown of any potential ETFs, including calculations for different exit points.
- Negotiate up front: Some providers are willing to reduce or remove ETFs to win your business—especially in competitive industries like telcos or energy.
- Switch at the right time: If possible, time your switch for the end of your contract period to avoid fees altogether.
- Look for no-fee alternatives: In 2025, many banks and telcos now offer truly ‘no exit fee’ plans—ideal for flexibility.
- Hardship provisions: If your circumstances change unexpectedly, contact your provider. Some will waive or reduce fees in cases of job loss, illness, or relocation.
Keep in mind, refusing to pay an ETF can impact your credit score or result in debt collection. Always clarify your obligations before making a move.
Conclusion: Know Before You Go
Early termination fees are a reality across many Australian contracts in 2025, but they don’t have to be a nasty surprise. By reading the fine print, understanding your rights under updated consumer laws, and negotiating where possible, you can avoid unnecessary costs and keep your finances on track.