Prepayment Compensation: Also due for Personal Loan?

In many mortgage loan agreements, the cancellation policy is incorrect or incorrect. For you as a consumer, this means that you can avoid the prepayment penalty or reclaim the prepayment penalty you have already paid.

Have the cancellation policy of your credit agreement checked free of charge and without obligation:

Caution: Even with personal loans, a prepayment penalty may apply.

With a bad credit rating and many Private credit entries banks refuse potential customers mostly borrowing. For many, there is only one way to get money in the short term : they take out a loan from a private donor. Often they pay high interest rates.

Do the same rules apply here as with consumer loans with a bank? Is a prepayment penalty payable when you prematurely replace a personal loan ? In this guide you will find all the information and possible disadvantages of a personal loan.

This article deals with loans that are granted from private to private. Consumer loans to banks are sometimes referred to as personal loans. However, these are not the subject of this guide.  In a nutshell: Information about the prepayment penalty for personal loans for fast readers

  • Due to the contractual freedom in Germany, a prepayment penalty may also be due for a personal loan – but this case is rather rare.
  • Get involved in a personal loan and lose your consumer protection.
  • A personal loan poses a high risk for lenders and borrowers.
  • If you want to close a mortgage, you should prefer a loan from a bank.

Personal loan and prepayment penalty: legal

Personal loan and prepayment penalty: legal

The Civil Code (BGB) sets out in detail which conditions and practices apply to both parties to a consumer credit. This gives private borrowers particular protection against their bank.

However, this consumer protection only applies to loans concluded with a commercial part, ie a bank.

Freedom of contract in Germany

Freedom of contract in Germany

No prepayment penalty? A personal loan is still not always useful.

Contracts concluded between two private persons are subject to the so-called “contractual freedom” in Germany in accordance with the Basic Law (Article 2, paragraph 1 GG).

This means that the contractors can freely determine what is in a personal loan agreement. This concerns both the amount of interest and all other modalities for the loan. So you can agree with your donors care to pay a prepayment penalty if you replace the personal loan prematurely.

Due to the freedom of choice, however, you can also arrange unusual and irregular repayment models.

The freedom of contract, however, are also limited : If a contract violates applicable law or morality, it is not valid. This may be the case, for example, if the lender requires a disproportionate prepayment penalty for the early repayment of the loan. However, it is up to a court to decide.

The calculation of the prepayment penalty for personal loans

The calculation of the prepayment penalty for personal loans

Unlike a bank, a private lender does not have to follow a precise formula if the borrower for the loan gives early termination.

The amount of the early repayment penalty can in this case be recorded in advance as a “contractual penalty”. But it is also possible to agree a variable compensation.

In the latter case, the calculation may not exceed twice the amount of a correctly calculated compensation in accordance with interest, duration and residual debt.

In many mortgage loan agreements, the cancellation policy is incorrect or incorrect. For you as a consumer, this means that you can avoid the prepayment penalty or reclaim the prepayment penalty you have already paid.

Have the cancellation policy of your credit agreement checked free of charge and without obligation:

The disadvantages of personal loans: no prepayment penalty but high risks

The disadvantages of personal loans: no prepayment penalty but high risks

By law, a private loan does not have to have a written contract – an oral one would be enough. Nevertheless, it is urgently recommended that the agreements – for example, an installment loan – to record in writing and to have reviewed by an expert.

About borrowers, however, the constant danger that the funder has terminated the contract and that floats in personal loans payment protection reclaimed in one fell swoop. It is difficult for money lenders to defend against this. A bank is not given this opportunity thanks to consumer protection.

Also, the right of withdrawal for consumers falls off the personal loan. Based on these facts, it is advisable to use a private loan only for short-term financing. Long-term loans should be taken to a reputable bank.

A mortgage loan as a personal loan?

A mortgage loan as a personal loan?

A lender can replace a personal loan at any time and demand the remaining debt.

If personal loans can help some people over a difficult time or make a great holiday possible, you should refrain from private mortgage lending. As a rule, exceptionally high sums are lent, which are often paid off over several decades.

In addition, the financed property usually acts as collateral – ie a pledge – for the loan. While banks are bound by narrow scope of action in this context, private individuals can act much more freely.