When is it possible to terminate the loan agreement?

Termination of the loan agreement may be given to the debtor if, for example, he is late in paying the installments. Can any such contract be terminated? What conditions should the termination of the loan agreement meet?

Loan agreement

Civil Code in art. 720 states: “By a loan agreement, the lender undertakes to transfer to the recipient the ownership of a certain amount of money or items marked only as to the species, and the recipient undertakes to return the same amount of money or the same amount of items of the same grade and quality.”

So, simply put, a loan is giving someone or taking money or something from someone for some time, subject to a refund within a specified period.

The form of the loan agreement is not specified by law – it can be concluded orally or in writing.

Warning! The loan agreement, whose value exceeds USD 1,000, requires a written form.

When is it possible to terminate the loan agreement?

Termination of the loan agreement is a request by the lender to repay the entire amount earlier than specified in the schedule or loan agreement.

Termination of the loan is possible only if the debtor is late with paying the installments. If the lender pays the amounts on time – then the lender cannot terminate the loan, i.e. demand early repayment.

Immediate maturity of the entire loan is also possible if the debtor has become insolvent or if as a result of the circumstances for which he is responsible, the security of the debt has been significantly reduced. The creditor may then request the performance of the benefit regardless of the reserved period (Article 458 of the Civil Code).

If the loan agreement is concluded for a definite period, it can be terminated only if its agreement contains a clause entitling it to terminate. If the loan agreement concluded for a definite period (i.e. with a certain repayment date) does not contain such a provision, it cannot be terminated.

However, if the loan agreement has been concluded for an indefinite period, the lender may terminate the loan agreement, i.e. demand a return of the loan.

To terminate a loan, the lender must make a statement to the debtor about the termination of the loan agreement with a six-week notice period.

Withdrawal and termination of the loan agreement

Withdrawal from the loan – it is a situation in which the borrower resigns from the loan. The borrower has 14 days from the date of signing the contract to withdraw from the loan agreement, without having to state the reason for the withdrawal.

Termination of the loan agreement – is a unilateral statement from which the lender wants to return the loan. Here phrases such as “I demand a loan repayment” or “I terminate a loan” can be used.

As for the form of termination, it can be in written or oral form. However, for evidentiary purposes, it is better that termination should remain in writing.

The loan agreement may be terminated:

  • by agreement of the parties,
  • on the terms specified in the contract,
  • on the terms set out in the code.

As a result of the termination of the loan agreement by mutual agreement, the debt is repaid on time and on the terms agreed by the parties. Termination of the loan agreement by mutual agreement may occur at any time.

Termination of the loan agreement on the terms specified in the agreement – it is a termination for reasons which have been indicated in the agreement (e.g. late payment, providing false information on income). Such termination is possible both in the case of contracts concluded for an indefinite period or for a definite period – it is important that specific situations that give rise to termination are included in the contract.

In the agreement, the parties may specify the form of termination of the loan agreement and the date the expiry of which – from the time of termination – will result in the loan being due to be repaid.

If no such term is included in the contract, art. 723 kc – the loan repayment date must not be less than 6 weeks from the date of receipt of the notice.

Instead of terminating the loan agreement 

Loan companies often send borrowers reminders after two unpaid installments. Failure to pay the amounts due within the deadline indicated in the reminder may result in termination of the loan agreement and initiation of enforcement proceedings.

In the above situation, when the debtor sees that it will be difficult for him to meet the payment of the installment within the deadline specified in the schedule, he can apply to the loan company for annexing the loan agreement, i.e. changing its terms (e.g. lower installments). It is true that annexing is a paid activity, but its cost is lower than penalty interest for late repayment of installments.