Early repayment penalty
If a loan is recalled by the borrower before the contractual term has expired, the lending institution is entitled to a statutory claim for compensation, a so-called early repayment penalty. A fixed rate of interest is generally agreed for the duration of the loan between the borrower and the lender in a credit agreement. This excludes the premature termination of the credit agreement and redemption of the loan. It is only in cases where the agreement provides for the possibility of repayment prior to maturity that an early repayment penalty need not be paid.
The early repayment penalty serves as collateral for the banks, which in turn offer the client a constant rate of interest. In most cases, this is achieved by the bank making appropriate investments for the purpose of refinancing. In the event that the loan is prematurely recalled, there is a risk that the lending institution will not be able to invest the money recovered at the same rates of interest and thus losses will be incurred.
Legal problems in connection with an early repayment penalty can arise, in particular, when calculating the extent of the loss or damage. However, it is often difficult for laymen to comprehend the calculations made by banks.
In some instances, it can be beneficial to take a closer look at the cancellation policies within loan agreements. These may be invalid due to badly written clauses concerning the beginning of the cancellation period or the legal implications. If this is the case, recall and the concomitant payment of an early repayment penalty are not necessary; it is sufficient to declare the cancellation of the agreement.
A lawyer can provide comprehensive legal advice on all issues relating to the recall of a loan and early repayment penalties. Whether it be in connection with legal disputes with lending institutions or examining the contractual documents, a lawyer who is versed in the field of capital markets law will review the claims of the respective parties involved and can also be of assistance in enforcing these.