The low interest rates on credit agreements mean that many borrowers review their existing agreements. They often find that they currently have to pay much lower interest rates. Is it true that there is also a right of withdrawal for credit agreements? How can one terminate a loan agreement prematurely and what about the so-called prepayment penalty?
Is there a right of revocation for credit agreements, how can a credit be revoked?
Many Internet users only know the right of withdrawal from online shopping. But also with consumer credit agreements (or consumer loan agreements, as it is called in the BGB) – colloquially real estate credit – the borrower can revoke the credit.
The following has been concluded with a company (such as a bank)
The borrower receives the contract for private purposes. The most important area of application here is a loan for the private purchase of a property or for private house construction. Corporate loans are not covered by this provision.
Term, rescheduling, fixed interest and residual debt
Before we take a closer look at the legal side, some important terms in connection with credit agreements in general and real estate loans in particular should be clarified.
Residual debt: The residual debt is the amount that has to be repaid to the lender at the end of the term of a loan. Here again there are various possibilities: Some credit agreements stipulate that the bond can be redeemed. This means that the remaining debt can be repaid at once.
The borrower must therefore have a larger amount of money at his disposal in order to repay the liabilities to the bank in one fell swoop.
Replacement due to inheritance or lottery prize: If inherited, the first consideration is often to replace an existing loan. Here too, however, the fact that you have made an inheritance or won the lottery alone is no reason to unilaterally terminate the credit agreement with the bank.
Here, too, you have to negotiate with the bank, which means that the bank will have the loss of interest paid by the early repayment of the loan at least in part. In some cases there are also processing fees.
Term and fixed interest rate: In most cases, credit agreements are concluded for a fixed term. Within this term (approximately 5 or 10 years), the bank agrees a fixed interest rate with the borrower. The borrower is therefore certain that the interest rate will not rise during the term of the contract. In particular with a construction financing the loan sum is not yet paid off after 5 or 10 years. The amount that remains after the term is the so-called residual debt.
Follow-up loan: In many cases (especially with expensive construction financing), the borrower is not able to repay the remaining debt in one fell swoop. After the end of the term of the first loan agreement, a so-called follow-up financing has to be sought. A new loan agreement is then concluded for the remaining amount, if possible at favourable interest rates than the original real estate loan. The first credit agreement does not have to be terminated, but expires at the end of the fixed interest period. The term and interest rates for the follow-up loan must then be renegotiated.
Debt rescheduling loan: The purpose of a debt rescheduling loan is to replace an existing credit agreement. The reasons for taking out a new rescheduling loan can be many and varied, and are usually the current low interest rates for credit agreements. If you took out a building loan 5 years ago with a fixed interest rate of 5.5% effective annual interest rate, but today would receive a comparable new loan at 2.9% effective annual interest rate due to the low interest rate policy, this can quickly make up an interest rate difference of several tens of thousands of euros. But there is no general right to reschedule a loan agreement or real estate loan simply because market interest rates have changed. Here the borrower is always dependent on the consent of the bank involved. And the bank usually makes this approval dependent on the so-called early repayment penalty.
The only way to repay a real estate loan at low cost without a prepayment penalty and to take out a much cheaper rescheduling loan is to revoke the loan.
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