Every borrower is entitled to a statutory right of withdrawal after concluding a loan agreement (Sections 495 (1), 355 BGB). The right of withdrawal extends not only to customary installment loans but also applies to a car loan, call credit or a building loan. If the borrower exercises his right of withdrawal, he is no longer bound by his declaration of intent to conclude a loan agreement with the lender.
Credit Withdrawal Requirements
The borrower has the right of withdrawal for a period of two weeks after submitting his declaration of intent. The revocation must be sent to the lender in text form, but does not have to contain any reason. If the borrower is considering a revocation, the legal exclusion period of two weeks must be observed. If it passes unused, the borrower is bound by the contract. It is therefore always advisable to document the timely revocation and its acknowledgment by the lender as evidence. The borrower should therefore withdraw by registered post. The corresponding delivery note from the postal official documents the timely access to the recipient.
Lender’s duty to provide information
The two-week cancellation period is set to run when the borrower has been informed of his right to cancel upon conclusion of the contract by means of a clearly structured instruction in text form. The written notification must not only contain comprehensive instructions on the details of the right of cancellation and the expiry of the deadline, but also the name and address of the person to whom the cancellation is to be declared.
Consequences in the event of a violation of the duty to provide information
The withdrawal period can also be extended under certain conditions. On the one hand, this is the case if the cancellation policy only takes place after the contract has been concluded. Then the cancellation period is one month. If – as in the case of a credit contract – the contract is to be concluded in writing, the cancellation period also begins to run when the borrower has been given a contract document or his written loan application or a copy of one of these documents. If this is not the case, the right to withdraw expires at the latest six months after the contract is concluded. However, an exception will be made if the borrower has not been informed or has not been properly informed about his right of withdrawal. In this case, the borrower has an unlimited right of withdrawal.
If the possibility of a revocation is ruled out, but the borrower still wants to withdraw from the contract, termination should be considered. Consumer credit law grants the borrower an ordinary right of termination for ordinary installment loans and an extraordinary right of termination for loans secured by mortgages (sections 489, 490 BGB).
The ordinary right of termination also distinguishes between termination of the contract with a fixed interest agreement and variable interest.
Unsubscribe from fixed interest rates
If the loan agreement is based on a fixed-rate agreement, the borrower has the first opportunity to terminate the contract six months after receiving the full loan with three months’ notice (section 489 (1) no.2 BGB).
This legal regulation can also be found in the credit terms of banks for loans with a fixed interest rate. As a result, the borrower can always terminate a fixed-interest loan agreement with a three-month notice period after the so-called six-month blackout period.
The borrower has another option to terminate the contract if an agreed fixed interest period expires and he does not conclude a subsequent agreement with the lender. Under this condition, the contract can be terminated by the borrower with a notice period of one month , but at the earliest for the end of the day on which the fixed interest period ends (§ 489 Paragraph 1 No. 1 BGB). Accordingly, notice of termination can only be given for the expiry of the day on which the fixed interest rate ends if a contractually agreed adjustment of the interest rate is made in certain periods of up to one year.
In any case, however, the borrower has a right of termination ten years after receipt of the loan in full with a notice period of six months (Section 489 (1) no.3 BGB).
Unsubscribe at variable interest rates
If, on the other hand, the loan agreement is concluded with a variable interest rate, the borrower can cancel at any time with three months’ notice (Section 489 (2) BGB).
The law basically considers the borrower to be in need of protection in the case of loan agreements with variable interest agreements. In this case, the risk of an additional financial burden due to interest rate adjustments is practically constant for the borrower. Therefore, he should be able to withdraw from the loan agreement under easier conditions.
Ineffective credit termination
Consumer credit law places the effectiveness of the loan termination on a clear condition. If the borrower makes use of the right of termination, he is obliged to repay the loan amount within two weeks after the termination takes effect (Section 489 (3) BGB).
The termination becomes effective upon receipt and acknowledgment by the lender. From this point on, the statutory two-week period runs. If the loan is not repaid on time, it must be regarded as irrelevant.
No exclusion of the right of termination
The borrower’s right of termination cannot be excluded or made more difficult (Section 489 (4) BGB). General terms and conditions (GTC) or loan terms of the credit institutions can therefore in no case legally shorten the borrowers’ termination rights. Appropriate credit contract terms would be legally irrelevant from the outset.