Bank cancels loan

If the bank terminates a loan, this is a very unpleasant event for you as the borrower concerned. Especially when it comes to monthly construction financing, for example. You suddenly find yourself in the situation of having to repay the amount of the outstanding debt immediately.

However, loan termination by the bank is not always effective. To find this out, it makes sense to consult an experienced lawyer.

The most important facts in brief

• In principle, the bank may not terminate a consumer loan with a fixed contract term for cause
• Extraordinary terminations are only possible under certain conditions
• Possible reasons for extraordinary termination are the deterioration of the collateral, the monthly repayment of the loan being at risk or the deterioration of the borrower's financial circumstances
• If you believe that the bank's termination is unjustified, it is advisable to consult a lawyer

The bank’s right to terminate the loan

The conclusion of a loan agreement is a bilateral legal transaction which is generally binding. The consumer receives money from the bank, which he pays back with interest. Oft nutzt der Verbraucher den Kredit für eine Baufinanzierung oder den Kauf einer Immobilie. As a result of the bilateral legal transaction, banks may only terminate a loan unilaterally in exceptional circumstances.

These exceptional cases are regulated in particular in Sections 490 to 498 BGB.

Ordinary and extraordinary termination of the loan

If the bank terminates the loan, a distinction must be made between ordinary and extraordinary termination.

Ordinary termination is not normally possible because the vast majority of loan agreements are concluded with a fixed term. In this case, the lender cannot terminate the loan agreement with due notice.

Extraordinary termination, on the other hand, may be declared at any time. However, certain conditions must be met for the termination by the lender to be effective.

Contractual right of termination for loans (GTC)

Some banks have included a contractual right to terminate loans in their general terms and conditions. This applies in particular to extraordinary termination. The bank hopes that this will make it easier to terminate the contract. Even if these GTC have been effectively agreed, this does not always mean that the contractual right of termination also applies.

Strong protection for consumer loans

The legislator has paid particular attention to consumer loans and the termination of loans by the bank. Consumer loans are loans granted by banks to private individuals for consumption purposes or to finance the purchase of real estate, often as installment loans.

Protection against dismissal is particularly high there. Ordinary termination is excluded for fixed terms. However, there are also special requirements for extraordinary termination. This applies not only to the grounds for termination, but also to the form. Errors occur time and again, especially with the form.

Legal grounds for termination and banks’ obligations

As already mentioned, the law permits extraordinary termination within a narrow framework. It lists the reasons that justify termination. These are:

• Borrower is in arrears with at least two consecutive monthly loan installments
• Total arrears amount to at least 2.5 percent of the nominal amount of the loan (for real estate loans)
• Deterioration or impending deterioration of the customer's financial circumstances
• Risk to repayment and redemption
• The value of a security deteriorates

Something else needs to be added for the two consecutive loan installments that are in arrears, as long as they are not real estate loans: they must be at least ten percent of the loan amount. If the loan has already had a term of three years, a default of five percent is already sufficient.

The bank terminates the loan due to unemployment: The main question here is whether this is to be equated with the threat of an objective deterioration in the customer's financial circumstances. Such cases are often contentious, so it is worth consulting a lawyer.

The law firm CDR Legal specializes in banking and capital market law and can support you with the relevant expertise. In a free initial consultation, we analyze your individual situation and discuss the next steps together.

General terms and conditions of banks

In addition to the statutory grounds for termination, some grounds for termination arise from the banks' general terms and conditions. Nevertheless, even in this case there must be good cause for the bank to terminate the loan agreement. These would be, for example:

• No provision of loan collateral contrary to commitment
• False statements with regard to financial circumstances
• Serious misconduct towards the bank

However, if there is indeed a reason for termination, the form must also be observed. And this is where mistakes are made time and again.

Credit institutions have a number of obligations in connection with a termination. This includes, for example, that a period of two weeks must be granted for outstanding installments. Within this period, the borrower has the opportunity to settle the arrears.

In addition, it is also one of the banks' obligations to send the defaulting borrower a written reminder. In addition, the bank must make the borrower an offer of talks in order to find a joint solution.

In summary, there are therefore the following obligations that the bank must fulfill in the context of a termination:

• Written reminder
• Deadline for payment of outstanding installments of 14 days
• Call offer to the customer

Bank loan termination should be avoided: Why?

If there is a possibility, you should avoid the bank's loan termination at all costs. The main reason is that a negative entry is made with Schufa as a result of the termination. This makes it difficult to find a new lender.

Loan canceled? What you can do

If the bank threatens to terminate your loan, you should first contact the bank. It is not unusual to find an amicable solution, such as reducing the loan installment or extending the term.

However, if you have already received notice of termination, it will be difficult. Now we need to find follow-up financing and persuade the bank to cooperate.

Checking the validity of the loan termination - how CDR Legal can help you

First of all, we can check whether the notice of termination issued by the bank is legally effective and therefore valid. The above-mentioned grounds for termination must exist and the form must be observed. Ordinary termination is rarely effective, with the exception of overdraft facilities.

If the law firm comes to the conclusion that the loan termination is not valid, we can take further steps together. It is therefore necessary to check the termination so that the next steps can be determined.

If we come to the conclusion that the termination is effective, the bank must be persuaded to be patient so that you can find follow-up financing at your leisure.

Avoiding early repayment penalties

If the bank terminates a loan, it may not charge a prepayment penalty. However, it is usually more advantageous if you cancel the loan yourself. This is mainly for your Schufa score. However, banks are then generally allowed to charge a prepayment penalty.

You should try to avoid this early repayment penalty by talking to the bank. Sometimes it is possible to reach an agreement on this. Another option may be to revoke the loan that has already been terminated. If the revocation is effective, you also do not have to pay an early repayment penalty.

The consumer advice center reports on the early repayment of a mortgage and when banks are allowed to charge an early repayment fee.

Revoke a terminated loan

Instead of accepting the termination of the loan by the bank or terminating the loan yourself, revoking the loan can be a good option. In practice, several regional courts and higher regional courts have already ruled that a loan that has already been terminated can still be revoked. This is stated, among other things, in a reference decision from May 6, 2013 (Ref.: 3 U 21/13) by the Higher Regional Court of Celle. The advantage of revoking the loan is that the bank's notice of termination would be invalid. This in turn means that you do not have to fear a negative Schufa entry or other disadvantages of a termination.