A sudden blessing of money or even a better offer from another lender – there are many reasons for early termination of a loan. Basically, if you take out a loan, you can partially or completely redeem it before the agreed term has expired. An early repayment of the loan amount including interest is deemed to be a termination of the loan agreement. The catch: If you cancel your credit arise in many cases costs. You should also consider the applicable notice periods. Because these vary depending on the type of loan and the time when the loan was granted.
Bank receives compensation for fixed interest
As of June 11, 2010, new regulations for consumer loans came into force. These are based on an EU directive and include new – more user-friendly – provisions on deadlines and costs in the event of termination. Individual regulations therefore vary depending on when the loan was taken out.
According to the law, the lender is entitled to adequate compensation, the prepayment fee, in the event of early termination. But not with every type of loan. The important question here is: Have you taken out a loan with a variable or fixed interest rate ? You can usually cancel loans with variable interest rates without additional costs. It looks different with fixed-interest contracts. Because when the loan was taken out, the bank guaranteed the interest rate for a certain term. If the borrower wishes to terminate the loan agreement prematurely, the bank will miss a portion of the agreed interest profit. And this can usually be paid with a prepayment penalty.
This is the maximum that the prepayment fee can be
The amount of the prepayment penalty for installment loans has been limited by law since June 11, 2010. For example, this may correspond to a maximum of 1 percent of the remaining debt if the term of the loan is longer than twelve months. If the remaining term is shorter, the prepayment penalty may amount to 0.5 percent of the remaining debt. The upper limit in both cases: The compensation must never exceed the interest costs that would have been incurred up to the end of the term.
The prepayment penalty is not capped for old contracts. The contractual terms of the bank are decisive here. There are providers who do not charge a fee for early loan repayment. Others are less accommodating and incur hefty expenses. Only a look at the small print creates clarity here. Therefore, before you cancel your loan, you should consider the amount of the prepayment penalty in your considerations. Anyone who has already canceled the loan should definitely check the estimated prepayment penalty. Lenders do not always calculate these correctly.
It is also possible to cancel the loan after 10 years, without having to pay the bank any compensation. However, installment loans generally do not run for longer than 10 years. The ten-year rule is therefore particularly relevant for very large loans, such as a construction loan.
These notice periods apply to consumer loans
Since June 11, 2010, the notice period for consumer loans can be a maximum of one month. Longer periods of notice are therefore no longer legally permissible for consumer loans. However, contracts before June 11, 2010 still have a three-month notice period. Before signing a loan contract, you should always check the cancellation policy and check with the provider if necessary. If you decide to cancel the loan, this should always be done in writing and ideally by a registered letter.
Important: The rules mentioned apply to consumer loans (mostly conventional installment loans), but not to a construction loan.
Borrowers have a 14-day right of withdrawal
To be on the safe side, you can download a template for your revocation here. Important: The signed letter must be available to the bank for an installment loan within 14 days after the loan has been taken out.
Did you change your mind shortly after taking out a loan? You can cancel the loan within 14 days free of charge and without giving reasons. Lenders may charge the interest accrued since the loan was paid out. The fixed interest rate applies to the calculation. After revocation, you must repay the loan amount and interest paid out within 30 calendar days. The revocation should be made in writing – preferably with a registered letter.
What many do not know: The prerequisite for the start of the 14-day period is that all legal minimum information – for example with regard to the revocation – is in the loan agreement. And this is exactly where many providers make mistakes. Borrowers can benefit from this and revoke the loan at any time, for example due to an incomplete cancellation policy. However, this regulation only applies to installment loans – the revocation period for real estate loans expires after 12 months due to incorrect minimum information.
Unsubscribe from credit – so go ahead
Have you taken out a loan and are you thinking about canceling it? First, you should ask yourself the following questions:
- Has the statutory withdrawal period expired or can I withdraw the loan?
- What is the contract termination policy?
- Is the cancellation policy correct or is there a loophole?
- How much is the prepayment penalty? Important: Is the remaining term longer or shorter than 12 months?
- In the case of debt restructuring: does the savings from the better offer exceed the termination costs?
If you decide to cancel the loan, this should always be done in writing and ideally by registered letter. The bank will then invoice you for the interest accrued to date, including the remaining loan amount and any prepayment penalty, which you must pay immediately.
Cancel credit in the event of insolvency?
Unemployment or a serious illness can affect anyone – if you want to cancel the loan because you can no longer manage the repayment, you should not act too hastily. Because that will usually not help you. The reason: If you cancel the loan, the bank recalls the open amount in one sum. To protect themselves against insolvency, borrowers therefore often take out residual debt insurance with their loan contract. In the event of an emergency, this often pays the installments.
However, if you do not have a policy, you should contact your bank immediately and try to find an individual solution. For example, one option would be to extend the term in favor of a lower rate. Alternatively, it can be worthwhile to reschedule the loan on more favorable terms. The loan from the new provider then replaces the debts with the previous bank.
Cancel expensive credit and save
Especially in periods of low interest rates, many borrowers would like to benefit from the current low interest rate and reschedule the loan. And that can also be worthwhile for expensive loans. Since June 11, 2010, the bank has been able to demand a prepayment penalty of up to 1 percent of the remaining debt.
In many cases, the compensation payment is less than the savings in interest due to the cheaper offer. Before you take out a new loan, you should get an overview of the current offer. With an online comparison, you can easily and conveniently find the cheapest and most suitable offer and complete it directly online.