Pay off the Targobank loan early and save on interest: A guide
3 Jul 2025
3
Minutes
Katrin Straub
CEO at nextsure
Having an ongoing loan with Targobank doesn't mean you're tied to interest payments until the final day. An early repayment can save you significant interest, but you need to consider the so-called early repayment fee. This article explains how you can proceed and when it is worthwhile for you.
The topic in brief and concise terms
You have the legal right to repay your installment loan early at any time (§ 500 BGB).
The prepayment penalty is legally capped at a maximum of one percent of the remaining debt (0.5 percent if the remaining term is less than 12 months).
An early termination is worthwhile if the interest savings exceed the costs of the early repayment penalty.
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 enshrined in Section 500 of the German Civil Code (BGB), giving you full control. However, as compensation for the lost interest income, the bank is allowed to charge a fee.
This fee is called an early repayment penalty and is strictly limited by law. If the remaining term of your loan exceeds twelve months, the compensation may amount to a maximum of one percent of the prematurely repaid sum. For a remaining term of less than a year, this rate is reduced to 0.5 percent.
It is also important that the compensation must never exceed the interest you would have had to pay without the early repayment. These clear limits protect you from excessive demands and make early repayment predictable. The next step is to determine the specific savings.
Calculate potential savings: Prepayment penalty vs. interest savings
To decide whether early repayment is worthwhile, you need to offset your potential interest savings against the incurred prepayment penalty. A simple example calculation can provide clarity here. Let's assume your outstanding debt with Targobank is 10,000 euros with a remaining term of 24 months.
First, calculate the maximum prepayment penalty. Since the remaining term is over twelve months, this amounts to one percent of 10,000 euros, which is exactly 100 euros. Now determine the interest you would still have to pay in the remaining 24 months. At an assumed interest rate of five percent, this would be approximately 520 euros.
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 redemption amount from the bank that details all items. With these figures, you can then make an informed refinancing decision. The next logical step is the exact procedure for requesting this amount.
Step-by-step guide: How to correctly repay the Targobank loan
If the calculation shows a clear saving, the practical implementation is the next step. A structured approach helps to avoid mistakes and makes the process efficient. Follow the following five steps to successfully pay off your loan.
Request payoff amount: Contact Targobank in writing to request a detailed breakdown of the payoff amount by the desired date. This must show the remaining debt, interest, and early repayment penalty separately.
Review offer: Compare the bank's official calculation with your own calculations and the statutory limits of one percent or 0.5 percent.
Ensure financing: Make the required amount available, whether from savings or through a new, cheaper loan. A loan refinancing at another bank can often further reduce the interest burden.
Make the transfer: Transfer the exact payoff amount to the bank, providing the purpose of use (e.g., "Early loan repayment, contract number XXXXX").
Obtain final confirmation: Request written confirmation that the loan has been fully repaid and no further claims exist.
This systematic approach secures the process. However, there are also special situations where the early repayment penalty can even be completely waived.
Expert Knowledge: When No Early Repayment Penalty Occurs
In certain cases, you can repay your Targobank loan early without having to pay compensation. The law provides clear exceptions here to protect consumers. A common reason is a faulty contract design by the bank.
If the credit agreement’s details on the term, termination rights, or calculation of early repayment penalties are inadequate or even incorrect, the bank’s claim is completely void. This has been confirmed by several court rulings and affects 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 percent of the remaining debt, which can at least reduce the early repayment penalty or even avoid it altogether if spread over two years. Even if you want to pay off an expensive overdraft loan, knowing about such clauses is invaluable. These legal subtleties are particularly important if you use refinancing as a strategy for repayment.
Utilise strategic refinancing as a way to save on interest
The most common method to pay off an existing loan is to take out a new, cheaper loan—a so-called debt restructuring. This is particularly sensible if the general interest level has dropped since your original contract was concluded. The new lender pays off the old debt directly.
Restructuring is worthwhile if the new interest rate is so much lower that it not only compensates for the prepayment penalty of one percent 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 to achieve a significant advantage. This is a good opportunity to consolidate multiple loans and improve visibility.
Careful planning of a debt restructuring is crucial for financial success. Always compare the overall cost, i.e., the sum of the new remaining debt and the prepayment penalty, with the remaining costs of your old contract. Thoughtful financial planning is the key to sustainable financial health.
More useful links
Verbraucherzentrale informs about the rights of borrowers in credit agreements.
Wikipedia offers general information and definitions on credit agreements.
The Deutsche Bundesbank provides statistics on deposit and loan interest rates.
The Federal Statistical Office (Destatis) covers the topic of assets and debts in Germany.
The Verbraucherzentrale informs about early repayment of a mortgage without additional costs.
Gesetze im Internet leads to § 489 of the Civil Code (BGB), which deals with the borrower's right to terminate a loan agreement.
The Deutsche Bundesbank explains the base interest rate.
FAQ
What is an early repayment penalty?
The prepayment penalty is a fee that a bank can charge if a borrower repays their loan before the agreed term ends. It serves as compensation for the interest the bank loses due to the early repayment. For consumer loans, the amount is strictly regulated by law.
How quickly can I repay a loan?
Once you receive the settlement amount from the bank and have sorted out the financing, you can proceed with the transfer. The process from request to confirmation of settlement usually takes between one and three weeks.
Does refinancing a loan improve my credit rating?
Yes, paying off a loan, especially when consolidating multiple loans into one, can improve your SCHUFA score and overall creditworthiness. Fewer outstanding liabilities indicate a lower financial burden and a reduced risk of default.
Do I need to provide a reason to the bank for early repayment?
No, with an installment loan, you don't need to provide a reason for wanting to make an early repayment. It is your legally enshrined right as a consumer.
What happens after full repayment?
Once the bank has received the full repayment amount, they should send you written confirmation of the loan discharge. In the case of car loans, you will also receive the vehicle registration document (Part II) back. Keep these documents safe.
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