Repay a Targobank loan early and save interest: A guide
03.07.2025
11
Minutes
Katrin Straub
Managing Director at nextsure
Having an ongoing loan with Targobank does not mean you are tied to interest payments until the very last day. Early repayment can save you a significant amount in interest, but the so-called early repayment charge must be taken into account. This article shows you how to proceed and when it is worthwhile for you.
The topic in brief and concise terms
You have a statutory right to repay your instalment loan early at any time (§ 500 BGB).
The early repayment compensation is limited by law to a maximum of one per cent of the remaining debt (0.5 per cent if the remaining term is under 12 months).
Early repayment is worthwhile if the interest savings exceed the cost of the early repayment charge.
Understanding the legal basis for early loan repayment
Every borrower in Germany has the legal right to repay their instalment loan in full or in part at any time. This right is anchored in Section 500 of the German Civil Code (BGB) and gives you full control. However, in compensation for the lost interest income, the bank may charge a fee.
This fee is called a prepayment penalty and is strictly limited by law. If the remaining term of your loan is more than twelve months, the compensation may amount to a maximum of one per cent of the amount repaid early. If the remaining term is less than a year, this rate is reduced to 0.5 per cent.
It is also important that the compensation can never be higher than the interest you would have had to pay without the early repayment. These clear upper limits protect you from excessive claims and make early repayment predictable. The next step is to determine the actual saving.
Calculate potential savings: early repayment charge vs interest savings
To decide whether early repayment is worthwhile, you need to compare your potential interest savings against the early repayment fee incurred. A simple example calculation can help make this clear. Let’s assume your remaining debt with Targobank is 10,000 euros with 24 months left to run.
First, calculate the maximum early repayment fee. As the remaining term is more than twelve months, this amounts to one per cent of 10,000 euros, so exactly 100 euros. Next, work out the interest you would still have to pay over the remaining 24 months. At an assumed interest rate of five per cent, this would be around 520 euros, for example.
The result is clear: you pay a 100-euro fee, but save 520 euros in interest, which corresponds to a net saving of 420 euros. For an exact calculation, you should request a settlement amount from the bank, which lists all items in detail. With these figures, you can then make a well-founded refinancing decision. The exact procedure for requesting this amount is the next logical step.
Step-by-step guide: paying off your Targobank loan correctly
If the calculation shows a clear saving, the practical implementation is the next step. A structured approach helps avoid mistakes and makes the process efficient. Follow the five steps below to successfully pay off your loan.
Request settlement amount: Contact Targobank in writing and request a detailed breakdown of the settlement amount on the desired date. This must separately show the outstanding balance, the interest and the early repayment compensation.
Check the offer: Compare the bank’s official calculation with your own calculations and the legal limits of one per cent or 0.5 per cent.
Secure financing: Make the required amount available, whether from savings or through a new, cheaper loan. A loan redemption with another bank can often reduce the interest burden further.
Make the transfer: Transfer the exact settlement amount, stating the payment reference (e.g. “Early loan settlement, contract number XXXXX”) to the bank.
Obtain final confirmation: Request written confirmation that the loan has been fully repaid and that no further claims exist.
This systematic approach secures the process. However, there are also special situations in which the early repayment compensation can even be waived entirely.
Expert knowledge: When no early repayment penalty applies
In certain cases, you can pay off your Targobank loan early without having to pay compensation. The law provides clear exceptions here that protect consumers. A common reason is an incorrect contractual arrangement on the bank’s part.
If the details in the loan agreement regarding the term, the right of cancellation or the calculation of the early repayment fee are insufficient or even incorrect, the bank’s claim lapses entirely. This has been confirmed by several court rulings and applies to contracts concluded after 10 June 2010. A legal review can often save several hundred euros here.
Our expert tip: Check your contract for clauses on free special repayments. Many contracts allow annual special repayments of up to 50 per cent of the remaining debt, which can at least reduce the early repayment fee or even avoid it altogether over a two-year period. Even if you want to redeem an expensive overdraft facility, knowing about such clauses is invaluable. These legal details are particularly important if you are using refinancing as a strategy for repayment.
Use strategic refinancing as a way to save on interest
The most common method of paying off an existing loan is to take out a new, cheaper loan – known as refinancing. This is especially sensible when the general interest rate level has fallen since your original contract was signed. The new lender then pays off the old debt directly.
Refinancing is worthwhile if the new interest rate is so much lower that it not only offsets the 1 per cent early repayment charge, but also generates additional savings. As a rule of thumb, the new effective interest rate should be at least two percentage points below the old one in order to achieve a significant benefit. This is a good opportunity to bundle several loans together and improve the overview.
Careful planning of refinancing is crucial for financial success. Always compare the total cost, i.e. the sum of the new remaining debt and the early repayment charge, with the remaining costs of your old contract. Thoughtful financial planning is the key to sustainable financial health.
More useful links
Verbraucherzentrale informs borrowers about their rights under loan agreements.
Wikipedia provides general information and definitions on the loan agreement.
The Deutsche Bundesbank provides statistics on deposit and lending interest rates.
The Federal Statistical Office (Destatis) covers the topic of assets and debts in Germany.
The Verbraucherzentrale provides information on early repayment of mortgage financing without additional costs.
Gesetze im Internet leads to Section 489 of the German Civil Code (BGB), which deals with the borrower's ordinary right of termination.
The Deutsche Bundesbank explains the base rate.
FAQ
What is an early repayment charge?
The early repayment fee is a charge that a bank may levy when a borrower repays their loan before the agreed end of the term. It serves as compensation for the interest the bank loses due to the early repayment. For consumer loans, its amount is strictly regulated by law.
How quickly can I pay off a loan?
As soon as you have received the payoff amount from the bank and clarified the financing, you can make the transfer. The process from the enquiry to the confirmation of the settlement usually takes between one and three weeks.
Does paying off a loan improve my credit rating?
Yes, repaying a loan, especially when several loans are consolidated into one, can improve your SCHUFA score and your overall creditworthiness. Fewer outstanding liabilities signal a lower financial burden and a reduced risk of default.
Do I need to give the bank a reason for the early repayment?
No, with an instalment loan you do not have to give a reason for your request for early repayment. It is your right as a consumer enshrined in law.
What happens after full repayment?
After the bank has received the full settlement amount, it should send you written confirmation that the loan has been repaid. In the case of car loans, you will also receive the vehicle registration document (Zulassungsbescheinigung Teil II) back. Keep these documents safe.
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