What is Early Cancellation? Definition of Early Cancellation, Early Cancellation Meaning and Concept

Definition of early cancellation is the termination of a contract in advance of the initially agreed expiration date.

Generally, when contracts and agreements are negotiated, in addition to the normal clauses on prices, requirements, requirements, obligations and rights, a horizon or term is also negotiated, called expiration, until which the contract will be valid. However, this does not indicate that, by obligation and in any way, the contractual agreement has to be in force until expiration, but that it can be concluded or terminated before this. This is what we call early cancellation or amortization. It is usually given frequently in cases such as loans and credits.

Depending on the type of agreement, early cancellation will be linked to additional bonuses or benefits. Benefits that compensate the possible consequential damage, of not fulfilling the agreed upon until the end. Also, the early cancellation of an agreement or contract varies depending on the product or deal reached. In addition, the cancellation can be total or partial, depending on whether the contract is totally or partially extinguished. An example of this is found in financial loans.

Ways to cancel early

The contract can be terminated or canceled early for two reasons:

  1. Agreement between the parties : They agree to terminate the contract before expiration. Either by activating a clause that indicates the procedure in the event that certain circumstances arise or if the parties cease the provision of services or goods, because it no longer interests any of them.
  2. When one of the parties decides to take advantage of the early cancellation it is due to the fact that the agreements have been skipped and exceeded : That is, the contract has been breached. Therefore, according to the signed clauses, one of the parties, unilaterally, can terminate the contract and cease to be subject to the agreement.

Example of early cancellation

An example where this can be observed is in loans, deposits and bank agreements (mortgage). Agreements where one of the parties, either the bank or the consumer, decides to terminate the contract and replace the money and / or interest to each party.

In these cases, early cancellation may incur costs. An example of this is a commission for early cancellation or a decrease in interest on a deposit. All of this as a penalty for having terminated the contract before expiration.