Retained interest (also colloquially known as a payout penalty) is future, currently unpaid, interest that some lenders add to the remaining principal of a loan to determine a payout figure in the event that the loan is terminated before the completion of the original term.
Some lenders recover ("retain") some (or all) of this interest by adding it to the remaining principal of the loan when calculating a payout figure.
Most Australian lenders offering commercial loan facilities (including chattel mortgage, hire purchase and finance lease) for cars, commercial vehicles and business equipment add retained interest to payout figures for loans that are terminated early.
The amount of retained interest charged varies from lender to lender, but generally ranges from 20% to 100% of unpaid future interest.
Additionally, retained interest is generally not included as a fee on the loan documents, but instead listed within the Terms & Conditions of the loan contract.