Early Repayment Penalty (Vorfälligkeitsentschädigung)
Early repayment penalty (Vorfälligkeitsentschädigung) in Germany: when does it apply, how is it calculated, and when can it be avoided?
Financial
§§ 489, 502 BGB
Also known as: prepayment penalty, early redemption charge, breakage cost
The early repayment penalty (Vorfälligkeitsentschädigung) under German law compensates the bank for lost interest income when a loan is repaid prematurely. Under § 489 BGB, after 10 years of fixed-interest period, borrowers have a special right of termination with 6 months' notice without incurring any early repayment penalty. (§ 489, § 502 BGB)