Pay off an installment loan early: limit the early repayment penalty

You can repay a consumer installment loan early at any time, in whole or in part. The bank may demand an early repayment penalty for this, but only within limits. The law caps this penalty, and if there are errors in the mandatory information, it can be waived entirely.

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Your chances of getting your money back

With a consumer loan you may repay early at any time. The early repayment penalty is capped by law, at most 1 % of the amount repaid early (or 0.5 % with a short remaining term) and never more than the remaining interest (§ 502 BGB).

If certain mandatory information is missing from the contract (for example on calculating the early repayment penalty or on the term), the bank's claim can be waived entirely. A check is worthwhile.

What you should do now

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1. Request the payoff amount
Have the bank tell you the current remaining debt and the calculated early repayment penalty.
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2. Check the cap
Check whether the penalty stays within the legal limits (1 % or 0.5 %) and does not exceed the remaining interest.
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3. Check the mandatory information
Have it checked whether the mandatory information in the contract is complete, if it is missing, the penalty can be waived.
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4. Pay off or refinance
Repay early or pay it off with a cheaper loan. Object to an excessive penalty in writing.

How to spot the scam

The bank demands an early repayment penalty above the legal limits.
The calculation is not comprehensible.
Mandatory information in the contract seems incomplete.

Frequently asked questions

May I pay off an installment loan at any time?

Yes. With a consumer loan you can repay early at any time, in whole or in part. The bank may demand a limited early repayment penalty for this.

How high may the early repayment penalty be?

At most 1 % of the amount repaid early, with a remaining term under one year at most 0.5 %, and never more than the interest still outstanding (§ 502 BGB). You do not have to accept excessive demands.

Can the penalty be waived entirely?

Yes. If certain legal mandatory information is missing from the contract, such as on the term or on calculating the early repayment penalty, the bank's claim can be waived. In case of doubt, have the contract checked.

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General information for self-help, not legal advice (RDG). In case of a high loss or uncertainty: contact a consumer advice center or a lawyer.