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Early repayment compensation: the upper limits

Early repayment compensation on an instalment loan tops out at 1 per cent, drops to 0.5 per cent when little term remains, and sometimes doesn't apply at all.

Updated: 31 August 2026 Tim Jungeblut Editorial methodology

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When compensation is due at all
Two upper limits, the lower one applies
Two cases in which nothing is due

If you repay early, the lender may charge compensation, but not in any amount it likes. § 502 of the German Civil Code (BGB) sets two upper limits and names two cases in which the claim lapses entirely.

When compensation is due at all

Under § 502 (1) BGB, the lender may claim reasonable compensation for the loss directly connected with the early repayment — but only if, at the time of repayment, you owe interest at a fixed borrowing rate. For general consumer loans, this fixed borrowing rate must also have been agreed when the contract was concluded. With a variable interest rate, the claim accordingly does not apply.

Two upper limits, the lower one applies

For general consumer loans, § 502 (3) BGB names two amounts, neither of which the compensation may exceed. First: 1 per cent of the amount repaid early — or 0.5 per cent if no more than one year lies between the early and the agreed repayment date. Second: the amount of borrowing interest you would still have paid in the period between the early and the agreed repayment date. When the term has almost run its course, this second limit is usually the stricter one.

1 per cent of the amount repaid
0.5 per cent if no more than one year of the term remains
Never more than the borrowing interest for that period
Only with a fixed borrowing rate

Two cases in which nothing is due

§ 502 (2) BGB excludes the claim entirely if the repayment is made from the proceeds of an insurance policy taken out, as required by the loan agreement, to secure repayment. The second ground for exclusion is the more important one in practice: the claim also lapses if the contract’s information on the term, on your right of termination or on the calculation of the early repayment compensation is inadequate. So it is worth reading exactly these three pieces of information before paying any compensation demanded.

Frequently asked questions

How high may early repayment compensation be?

For general consumer loans, under § 502 (3) of the German Civil Code (BGB) it may exceed neither 1 per cent of the amount repaid early — or 0.5 per cent if no more than one year lies between the early and the agreed repayment date — nor the amount of borrowing interest you would still have paid during that period. The lower limit applies in each case.

When does early repayment compensation not apply at all?

§ 502 (2) BGB names two cases: if the repayment comes from an insurance policy that the loan agreement required as security, or if the information in the contract on the term, the right of termination or the calculation of the early repayment compensation (Vorfälligkeitsentschädigung) is inadequate. In addition, the claim only exists in the first place where the borrowing rate is fixed.

Is paying off early worthwhile despite the compensation?

The difference decides. Under § 501 BGB, the interest and costs for the remaining term fall away; set against this is the capped compensation. Because the compensation may never exceed the borrowing interest for that period, there is usually an advantage left — how large depends on the outstanding balance and the remaining term.

Selected sources

Note: This article is general information and not legal advice. It does not replace an assessment of your individual case by a lawyer or a consumer advice centre. No guarantee of accuracy; the law and case law may change.