The will to terminate a loan is often given quickly.
However, before the borrower puts that step into action, he must be aware of the consequences.
Canceling a loan agreement can have more far-reaching consequences than terminating a cell phone contract.
All facts about the guide “Cancel a Loan” at a glance:
- Termination of loans can be motivated by divorce, job changes, a changed life situation or falling market interest rates.
- Depending on the form of loan, different statutory notice periods apply. These can also be contractually replaced.
- The pattern for a termination can be used as a template.
1. Four reasons for a termination
Everything is not always going according to plan in life. There are decisions that can have far-reaching consequences.
If the case arises that a divorce is imminent, the house can usually no longer be held by one alone, as the repayment installments can no longer be paid.
But even if the relationship with the life partner is enduring, the relationship with the employer can sometimes be unexpected. Job changes, whether due to termination or transfer, can result in the sale of the home. Only a few can allow the house as a second home in case of a necessary move. In this case, from the point of view of the borrower, it seems to make sense to terminate the loan agreement. Loans that are no longer needed do not need to be serviced anymore.
Then there are of course the savings fox among the debtors. In the face of falling lending rates, the sight of their own out-of-date credit conditions drives them to their foreheads. With each installment to be paid, they calculate how much they could save on a current interest rate loan – and consider what they could do with the money. Sooner or later, this will make debtors clean up new offers, seek information regarding the termination right and seek a conversation with the bank adviser. Nothing gnaws so much at the ego of a saver, as the feeling of being overreached.
Another reason for the termination may be the change in the life situation, which require shorter or longer terms of the loan. Thus, the death of the partner in addition to the emotional burden can also lead to financial losses. The consequences of this can also be the beginning of family planning, since most of the salary of a partner is lost. However, this scenario is usually considered in advance, is included in the maturity. In addition, there are now numerous credit models that include potential changes in the living situation. Here, special repayments are possible in case of unexpected cash injections and lower repayment installments when the budget is running low.
The termination of a loan can be for various reasons for debate. Divorce, change of job, changed life situations and also the market development can move the debtor to such considerations.
2. What protection against dismissal exists for which loan?
The BaFin, that is the Federal Financial Supervisory Authority differentiates into various types of credit or loan, each with different rules regarding the protection against dismissal.
a) The loan takes longer than the fixed interest rate
This form of loan is in common use. Evil tongues may claim here that the low initial interest rates are only lock-offers. The fact that an adjustment to the market interest rate takes place after a certain period of time has also had advantages for the borrower in the past. Because, according to the agreements that are laid down in the loan agreement, interest rates may even fall after the interest rate has expired.
In general, such contracts can not be terminated within the fixed interest period. However, after expiry of the fixed interest period, § 489 (1) no. 1 BGB (German Civil Code) and the borrower can terminate the contract with a one-month notice period. However, if other arrangements have been made in advance – both at the conclusion of the contract or shortly before the end of the fixed interest period, the above notice period is obsolete.
b) Loans with variable interest
In times of higher market interest rates and the associated expensive loans, the temptation to resort to loans with variable interest rates is great. True to the motto “It can not get any worse!”, These loans are concluded with the ulterior motive of switching to lower interest rates. This possibility is even supported by the legislature. In principle, the periods of notice are here according to §489 paragraph 2 BGB at three months.
c) A long-term loan with a fixed interest rate of more than ten years
These loan agreements are mainly agreed upon when building or buying real estate, as the repayment terms here are extremely long. Basically, this contract is similar to the form in subitem a), except that the maturities here are longer. This is also reflected in the legal agreements on dismissal protection. According to BaFin, §489 paragraph 1 no. 2 BGB applies here. After expiry of the fixed interest period – ten years or more – the borrower has to observe a notice period of six months. In the case of mortgage or mortgage cover, the provisions also apply.
d) The loan is secured by a mortgage
Within these ten years, however, in the case of mortgage or mortgage loans, the borrower will not be able to terminate these loan agreements. Exceptions here are so-called extraordinary occurrences, in which the objects on which the mortgage of the mortgage is to be sold, can or want. That this happens may be related to inheritance disputes, divorces or unlawful lending to other creditors.
With the loss of the hedge also the credit contract loses validity – to the disadvantage of the borrower. The now occurring termination can be accompanied by sensitive penalties, such as prepayment penalties. That is why caution should always be exercised, especially with real estate loans secured by mortgages and mortgages. If the debtor is in financial distress, it is by no means recommended to make some unanimous decisions.
A conversation with the bank adviser or an independent financial advisor can shed some light on the subject. Often opportunities arise here, to which the average consumer does not even think.
e) consumer loan agreements
The fifth form of loan is a consumer loan agreement according to § 491 BGB. This means, above all, that they are not secured by a mortgage. There are also loans for which no terms have been agreed. Here only monthly interest payments are to be made and the loans can be paid regularly or depending on the budget. The notice period can be up to one month.
If terms and installment credits have been agreed, although premature termination is generally possible, a prepayment penalty may be charged by the lender.
Again, there are conditions by the legislature. § 502 BGB shows how the prepayment penalty can be calculated. It has also been determined that it may not exceed 1 per cent of the early repayment amount. If the difference to the agreed repayment date is less than one year, the prepayment penalty may not exceed 0.5 percent.
The loan amount is 200,000 euros over 25 years. Assumed after twelve years to pay only 100,000 euros. If the borrower wants to settle the loan immediately, the interest amount and a prepayment penalty of up to € 1000 must be paid in addition to the outstanding loan amount.
If the same loan is terminated after 24 years, the open loan amount of 800 euros in the simplest case plus the outstanding interest and a prepayment penalty of a maximum of 4 euros must be paid.
Under § 502 Abs. 2 BGB the conditions are listed, under which the payment of a prepayment penalty become obsolete. These relate primarily to the written form of the credit agreement or missing information in the loan agreement.
It should be noted at this point that all the deadlines mentioned above are only valid as long as no other agreements have been made. According to German jurisprudence, lending transactions are legal relationships that can be freely designed, as long as the applicable law has not been violated, for example the Wuchergesetz § 138 Ab. 1 Nr. 1 BGB.
3. How to cancel your loan agreement in 3 steps
When terminating a contract, the following must be taken into account:
- Name and contact details of the borrower
- Name of the lender
- Date of termination
- Designation of the contract / credit account number
If you are uncertain about the correct approach and liquid formulation, you can use the following form as a template:
You can copy this form into a word processing program, fill out the relevant places and print them out. You can use the pattern for termination as a template and form.
4. The conclusion: dismissals require preparation
Whether the effort to carry out a termination makes sense depends primarily on the reason for the termination. If the loan is to be terminated due to a sudden financial wind-up against the contractual arrangements, it must be weighed up whether the prepayment penalties that may be due are really advantageous in relation to the benefit of a loan or if investing the money in capital investments makes more sense.
Such considerations must also be considered when changing loan agreements. Here, the total effective interest rate can be compared using tables. It not only includes interest and repayment installments, but also all additional fees.