Repaying 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.

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.

• 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.