The loan agreement may end in many different ways, not only on the assumed last day of the loan period. In many cases, both the customer and the bank may terminate the loan agreement.
Regardless of whether it will be a mortgage, cash loan or consolidation loan, the bank will terminate the contract with the borrower if he does not comply with its terms. And when can the customer terminate the loan agreement with the bank?
Termination of the loan agreement by the bank
The loan agreement is the basis for granting loans and credits. Pursuant to the banking law, the bank signs a loan agreement with the customer and undertakes under this agreement to provide the borrower with a fixed amount of money for the designated purpose in exchange for payment of interest and other fees, e.g. commission for granting the loan.
The borrower must repay the contracted liability within the period specified in the loan agreement, and at the same time pay fixed and interest installments in accordance with the repayment schedule.
However, if the borrower defaults, it is possible for the bank to terminate the loan agreement. This is an extremely rare situation that only occurs in special cases. When can the bank terminate the loan agreement?
Conditional termination of the loan agreement
It happens in practice that some banks put conditional termination of the loan agreement. It consists in sending a letter to the consumer-borrower in the event of a delay in repayment of loan installments – in this letter the bank calls on the borrower to pay the outstanding principal and interest installments and informs that if this does not happen, the letter should be treated as a termination of the loan agreement by the bank.
In court rulings, a bank’s declaration of intent as conditional termination of a loan agreement will be considered ambiguous and in violation of the admonition procedure.
Difference between withdrawal and termination of the loan agreement
Often, the terms “termination of the loan agreement” and “withdrawal from the loan agreement” are used interchangeably. Meanwhile, withdrawing from the loan agreement is completely different from terminating the agreement. The borrower may withdraw from the loan agreement if the bank has grossly neglected the financing conditions specified in the original loan agreement.
When withdrawing from the contract, the borrower must immediately return the full amount of the commitment to the lender. Withdrawal from the loan agreement is also the right of borrowers who took out a mortgage or a consumer loan. There are 2 weeks for this from the moment the loan agreement is signed, and the withdrawal does not involve any additional financial consequences.
Legal basis for the termination of the loan agreement
Termination of the loan agreement is possible in the cases specified in art. 75 of the Banking Act.
Even if the borrower loses his creditworthiness, the bank will not always terminate the contract. According to art. 75 clause 3 of the Banking Act, if the borrower has lost his creditworthiness or there is a threat of his bankruptcy, the bank has no right to terminate the loan agreement if he has already agreed to the recovery program by the borrower. Such legal conditions are the result of the entry into force of the provisions of the Act of 15 May 2015 – Restructuring Law.
When can the bank terminate the loan agreement?
There are many grounds for the bank to terminate the loan agreement. When can he terminate the loan agreement? What does this involve?
By terminating the loan agreement, the bank may cite:
- the borrower’s failure to meet the conditions under which the loan was granted;
- the borrower’s loss of creditworthiness, resulting in either a reduction in the amount of the loan granted or termination of the loan agreement;
- intentional misleading the creditor by providing false information about the customer’s own credit standing, legal situation, etc .;
- a significant decrease or disappearance of the loan repayment collateral, e.g. decrease in the value of the mortgaged property;
- the purpose of the loan proceeds is not in line with the purpose set out in the contract (these are special-purpose loans).
Banks must maintain a minimum 30-day period for the termination of the contract, although they may set a longer period in the loan contract. If, however, there is a risk of the borrower’s bankruptcy, banks may also demand a refund within 7 days of the decision to terminate the contract.