For many Germans the immediate termination of a current loan is a heavy blow.
Often, it may even be worthwhile to terminate existing financing by yourself and to take advantage of an inexpensive alternative. In addition, banks and credit institutions may only reclaim your loan for one important reason. Therefore, below you will learn how the loan termination by the bank and the borrower is in practice and to which legal regulations it is subject.
What loans can the consumer cancel?
The installment loan
In Germany, almost all paid loan agreements between banks and consumers, whose loan amount is over 200 euros and which are not used to finance a property, are called installment loans. In many cases, it is a loan with a fixed borrowing rate that remains in effect for the entire life of the loan. These contracts can be terminated by the borrower at any time without notice.
However, the bank is guaranteed a claim for prepayment penalty. The decisive factor here is that the lender may demand a maximum of one percent of the remaining balance for a residual term of more than one year. On the other hand, if the loan expires in less than twelve months, it may only raise 0.5 percent. After the dissolution, the entire balance including the compensation must be paid within two weeks.
The disposition credit
All disposition and call-off loans are so-called bank overdrafts. As such, they fall into the category of general consumer loan agreements with no fixed repayment date. For this reason, these loans can always be terminated at any time without notice. Of course, there are also some exemptions in practice.
Deviating agreements must, however, always have been agreed in the credit agreement. The decisive factor here is that only one month’s written notice of termination is legally binding. Longer deadlines are always ineffective according to BGB.
The real estate loan
Real estate loans are subject to special regulations in Germany. As a rule, these can only be terminated at the end of the fixed interest period or after ten years. While a notice period of six months must be taken into account after ten years, a period of one month applies after expiry of the fixed interest period. In addition, consumers with a legitimate interest have an extraordinary right of termination.
What are the benefits of the termination?
Termination of a current loan in some cases offers attractive benefits. Many consumers cancel their loan if they can no longer afford the agreed installment payments and want to repay the financing by offering lower monthly costs.
In addition, the liquidation of the financing is also useful if the established collateral will lose their value in the foreseeable future. This case occurs especially when the collateral is equity or a car. Finally, the termination may also result in cost savings if the statutory compensation is below the expected interest.
When can the bank cancel a loan?
The installment loan
Credit institutions are not entitled to a regular termination right for installment loans with a fixed interest rate. Therefore, they can only terminate the loan under certain conditions. In addition to a significant delay in payment and a significant deterioration in the income and assets, this also jeopardizes the repayment due to an immense loss of value of the deposited collateral.
In addition, the bank may terminate the financing if the agreed credit collateral is not fully provided. In addition, the lender has extraordinary termination rights for installment loans. Therefore, he may reclaim the current loan if there is a default of at least two installments or five or ten per cent of the principal amount.
However, despite the non-payment, the outstanding amount must be able to be paid in advance within a two-week period without any further consequences. At the latest, the lender must offer a discussion on a mutually agreed settlement by setting a deadline.
The disposition credit
The only exception to these rules is a current discretionary loan. Since this form of financing is a loan without a fixed term, the Bank may at any time terminate it with a reasonable period of notice.
The legislature prescribes a period of time during which the bank customer has sufficient time for a change of supplier or rescheduling. As a rule, the courts consider that a period of six weeks is appropriate.
What are the consequences of a termination by the bank?
Although no early termination fee may be charged following an extraordinary termination, the Bank may assert a claim for damages. This is set by law to a value of 2.5 percentage points above the base rate.
The current base interest rate results from the publications of the Bundesbank. Furthermore, the consumer is of course obligated to pay the due amount in full. Finally, an extraordinary dismissal also causes a worsening of the credit bureau score and thus far-reaching consequences.
What can the consumer do after a loan has been canceled?
With the termination, the remaining debt is due immediately. Therefore, the required amount must either be paid out of own funds or secured by rescheduling. Therefore, borrowers should always seek early on the conversation with the bank to agree on an extension of the term or repayment suspension. After termination, however, the scope for negotiation is severely limited.
For this reason, consumers should consider rescheduling at an early stage and avail them before terminating the existing loan. Thus, the monthly installments can usually be significantly reduced, so that it no longer comes to financial difficulties. In addition, a negative entry is also avoided at credit bureau, which can stand in the way of later funding.