Paying off a loan early

With a general consumer loan, you can repay early, in full or in part, at any time. The total cost is then reduced by the interest and costs attributable to the remaining term.

Key points at a glance

• You may pay off an instalment loan in full or in part at any time, without giving a reason and without the bank’s consent (§ 500 (2) BGB).
• Interest and costs for the remaining term fall away (§ 501 BGB).
• The bank may charge at most 1 per cent of the amount repaid as early repayment compensation, or 0.5 per cent if no more than one year remains (§ 502 (3) BGB).
• With a variable interest rate, no compensation is due at all.

The right itself

§ 500 (2) sentence 1 of the German Civil Code (BGB) gives you the right to settle your obligations under a consumer loan agreement early, in full or in part, at any time. You need neither a reason nor the lender’s consent. The exception concerns the consumer property loan with a fixed borrowing rate: there, early repayment during the fixed-rate period is only possible if you have a legitimate interest. This restriction does not apply to the standard instalment loan.

Costs fall proportionally too

Under § 501 (1) BGB, the total cost of the loan is reduced by the interest and costs in line with the remaining term. Paying off early therefore genuinely makes the loan cheaper, not just shorter. This is why the total cost stated in an offer is not a fixed figure. If you expect to have a larger sum available in two years, you should compare offers not only over the full term but also over the term you actually plan. For contracts from 20 November 2026, § 501 (1) BGB is reworded: the total cost is reduced in line with the remaining term, and besides interest only costs imposed on you by the lender are taken into account in the calculation (BGBl. 2026 I No. 139).

• At any time, in full or in part
• No reason or consent needed
• Interest and costs for the remaining term fall away
• Exception: property loans during the fixed-rate period

What to set against it

Paying off early may entitle the lender to early repayment compensation if, at the time of repayment, you owe interest at a fixed borrowing rate. For general consumer loans, however, this compensation is capped by law: at 1 per cent of the amount repaid, or 0.5 per cent if no more than one year of the term remains. So weigh the two against each other: the interest saved for the remaining term against the capped compensation. Because the compensation may not exceed the borrowing interest for that period in any case, there is usually an advantage left.

Worked example: what paying off early saves

Two simplified examples with a fixed borrowing rate of 7 per cent and equal monthly instalments. The figures are rounded and only illustrate the principle; your bank calculates with the values in your contract.

Item	Case A	Case B
Balance	€10,000	€5,000
Term left	24 months	10 months
Interest saved	approx. €745	approx. €162
Max. fee	€100 (1 %)	€25 (0.5 %)
Min. benefit	approx. €645	approx. €137

Because the compensation is capped, paying off an instalment loan early almost always leaves you better off. Whether it makes sense for you depends more on whether you need the money elsewhere: don’t put your entire emergency fund into repayment. If you want to replace an expensive loan with a cheaper one, the refinancing calculator helps.

When no early repayment compensation is due

The bank may only claim compensation if, at the time of repayment, you owe interest at a fixed borrowing rate. For general consumer loans, that fixed rate must have been agreed when the contract was concluded (§ 502 (1) BGB). The claim is excluded altogether in these cases:

• The loan runs at a variable interest rate.
• The repayment comes from an insurance policy taken out under the loan agreement to secure repayment, such as a payment protection insurance (Restschuldversicherung) that pays out (§ 502 (2) no. 1 BGB).
• The contract contains insufficient information on the term, your right to terminate or how the compensation is calculated (§ 502 (2) no. 2 BGB).

In addition, the compensation may never exceed the borrowing interest you would have paid up to the agreed end of the term. For more on how banks calculate the amount, see the guide on early repayment compensation.

Paying off step by step

1. Request the settlement figure: Ask your bank in writing for a statement as of a set date: outstanding balance, interest up to that date and any early repayment compensation.
2. Check the statement: Is the compensation below 1 per cent or 0.5 per cent of the amount repaid? Are there any fees listed that are not in your contract?
3. Transfer on the set date: Pay the stated amount on time and with the reference given. If the money arrives later, interest keeps running.
4. Stop the instalments: Check whether the bank will still collect the next direct debit. An instalment collected twice must be refunded.
5. Get written confirmation: Ask for written confirmation that the loan has been repaid in full, and for the return of any security such as a salary assignment or the vehicle registration document.

Pay off in full or in part?

The law expressly allows partial early repayment too. Costs then fall for the part you repay. Whether your monthly instalment becomes smaller or the term shorter afterwards is something to clarify with the bank beforehand and get confirmed in writing. A shorter term saves more interest; a lower instalment gives your monthly budget more room.

Special case: car loans

A car loan follows the same rules as any instalment loan. Three points come on top:

• Registration document: The bank often keeps the Zulassungsbescheinigung Teil II (vehicle title) as security. Once the loan is repaid in full, you get it back. Ask for it if it does not arrive on its own.
• Selling the car: If you want to sell the car, you usually pay off the loan first so that you can hand the buyer the registration document. Request the settlement figure for the sale date as described above.
• Final balloon payment: With balloon financing, a large final instalment remains at the end. You can pay this off early in full or in part as well, or refinance it with a cheaper loan.