When Can the Borrower Terminate the Loan Agreement?
February 1, 2019
I wrote my blog on a time when a bank can terminate a loan agreement and what it involves. Observing, however, the questions entered into the search engine on the website, I see that you are also looking for information on the reverse situation, i.e. when the borrower can terminate the loan agreement. So I felt called to the board and today’s publication will be about it. ? This issue is related to the loan repayment deadline, I have to refer to it briefly.
The credit repayment date may in theory be reserved for both parties.
In accordance with the Banking Law, unless the loan agreement provides otherwise, the loan repayment date is a reserved term for both parties. What does it mean? It is important that both the borrower and the bank are bound by the loan repayment date, which they agreed in the contract. So, if the contract is not otherwise stated, the bank can not demand early repayment of the loan, and the borrower, without the bank’s consent, can not repay the loan before the agreed date. This does not apply to situations in which a bank has the right to demand early repayment of a loan due to a breach of its terms. You will learn more about this from here: When can a bank terminate a loan agreement?.
The solution with a reserved term in favor of both parties adopted in the Banking Law differs from the general rule of civil law expressed in art. 457 of the civil code. According to the Civil Code, in case of doubt, the date of performance determined by a legal act is deemed to be reserved in favor of the debtor. In practice, a codex solution means that the debtor can pay off the debt ahead of schedule, while the creditor can not demand earlier, early repayment of the debt.
Returning to the Banking Law, the repayment date of the loan does not have to be reserved in favor of both parties and this issue can be regulated differently in the contract that the bank signs with the client. The parties may decide that the bank will be able to demand repayment of the loan before the agreed date, as well as that the borrower will have the right to repay the loan at any time before the final repayment date and the bank will not be able to oppose it, i.e. will have to repay the loan early. In practice, the deadline in favor of the bank is not met in contracts operating on the market. However, you can find solutions that allow the borrower to repay the loan early. Sometimes this involves paying a fee in the form of commissions.
A loan agreement with a repayment term exceeding one year.
In addition to the will of the parties that may set the rules for early repayment of the loan, the exception to the repayment deadline for both sides of the loan agreement is also the solution provided for in art. 75a paragraph 2 of the Banking Law. This solution applies to medium and long-term loans. According to it, if the parties have agreed on a repayment date of more than one year, the borrower may terminate the contract with a three – month term. The termination of the loan agreement in this mode is not conditional upon any conditions, i.e. the borrower may terminate the contract without giving a reason. As a result of termination, the loan agreement is terminated after three months and the borrower is obliged to repay the debt within this period. However, it should be remembered that this provision is dispositive, i.e. it may be modified or excluded by the parties in specific contracts. Issues related to early repayment of the loan by the customer can therefore be regulated differently, for example, the borrower’s right to early repayment of medium and long-term loans can be excluded, or dependent on the bank’s consent, certain conditions or the obligation to pay commissions.
Consumer credit – unique rules.
The above considerations do not apply to consumer credit. The Consumer Credit Act clearly states that the consumer who has taken out a consumer loan is entitled to early repayment of the loan. This right applies to the repayment of the entire loan, as well as its part. Early repayment is not conditional upon prior information to the lender. Early repayment can be made at any time, its timing does not have to coincide with the agreed payment date of the loan installment. You can find out more about this from here: Consumer credit agreement and consumer rights based on it.
The consumer loan can be repaid before the deadline and this right can not be turned off by the consumer in the loan agreement. In order to end the credit relation with the bank earlier than the loan maturity specified in the contract, the consumer does not have to terminate the loan agreement, because he can use the right to early repayment of the loan at any time when he wishes to do so. Termination of the contract in the case of consumer credit is therefore, as a rule, unnecessary with a certain exception. Consumer credit can also function in the form of a revolving loan. Such a credit agreement for a renewable consumer may be terminated without additional charges at any time, unless the contract specifies a notice period. However, the notice period provided for in the revolving loan agreement for the consumer may not be longer than one month. The borrower-consumer statement of termination of the contract does not require any form, so it can be even an oral statement at the bank.
What is the effect of terminating the loan agreement?
The termination of the loan agreement by the borrower results in the fact that upon the end of the notice period, the bank’s claim for the repayment of the loan together with interest due becomes payable. So the expiry of that period the borrower must pay to the bank the entire outstanding amount of the loan together with accrued for the period of use of the loan interest.