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Early repayment penalty: Are liquidity costs the same as counterparty risk costs?<sup>1</sup>
NEWS 01/2026The early repayment penalty is a sum of money that a borrower must pay to the bank if they repay a loan early. There is still no agreement between consumer advocates and bank representatives on the correct procedure. One point of contention, for example, is the reimbursement of credit risk costs. Since the Federal Court of Justice ruling of 7 December 2000 (XI ZR 27/00), it has been clear that these must be stated as a percentage of the loan.
Early repayment penalties under discussion
In the debate over the correct procedure for reimbursement, there is still no agreement between consumer advocates and banking representatives. One of the points of contention concerns the reimbursement of counterparty risk costs (risk costs for short). Since the Federal Court of Justice ruling of 7 December 2000 (XI ZR 27/00), it has been clear that these must be stated as a percentage of the loan.
The percentage can be calculated in various ways.
- The risk premium for the specific contract may be estimated in accordance with Section 287 of the Code of Civil Procedure. In banking practice, the flat-rate reimbursement amounts range between 0.06% and 0.1% p.a.
- From an economic perspective – but also in accordance with the MaRisk guidelines on loan pricing – the risk premium could be made dependent on the bank customer’s classification within a risk class (risk segment).
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