Disagio in the Context of Currencies and Securities
Disagio in the Case of Early Repayment
Disagio - the term, which originates from Italian usage, refers to an abgeld, i.e. a discount on a nominal value, which is common, among other things, in lending but also when issuing foreign cash or securities. The counterpart to Disagio is Agio or premium. Agio and Disagio together form the Damnum. The Damnum is thus the difference between the repayment amount and the disbursement amount of a loan.
Disagio for a Loan
With Disagio, the abgeld is stated based on the loan amount either as a percentage or as a disbursement rate — often labeled as the disbursement rate. This means that with an amount of 100 euros and a Disagio of 9 percent, only 91 euros of the loan amount are paid out and thus granted to the borrower. However, the borrower must pay interest on and repay the full 100 euros.
The reasons for this Disagio, i.e. the reduction of the nominal value of the loan, lie in a low nominal interest rate agreed between lender and borrower. In such an agreement, the Disagio is then regarded as interest prepaid by the borrower. The advantage for the borrower with this Disagio is that, due to the fixed interest rate over an agreed period, monthly instalments are cheaper than with a loan without Disagio.
By taking out a loan with Disagio, the borrower has the chance to obtain a favorable nominal interest rate for the period during which the Disagio is agreed with the lending institution. For the borrower, the effective interest rate remains the same during this period.
Price Calculation of Disagio
The calculation of the nominal interest rate, which is reduced due to the Disagio, is relatively complex. Banks use the so-called iterative method for this, which is elaborate and is specified in the Price Indication Ordinance (Preisangabenverordnung), abbreviated as PAngV. Within the Price Indication Ordinance, the aim of the effective interest rate calculation is to enable a comparison of two types of credit when, under the same calculation principles, the resulting effective interest rate yields the same remaining debt at the end of the comparison period.
Within the price comparison regulation and the prescribed procedure here, it is assumed that a disbursement of the loan including the agreed Disagio takes place entirely at the beginning of the loan term and that repayment of the loan begins one month after its disbursement. However, this is generally not the case for mortgage loans used to build a property, although it is for debt restructuring, the purchase of plots of land, or the acquisition of already completed buildings.
Disagio in the Context of Currencies and Securities
For so-called bonds, it is common market practice for issuers to withhold either an issuance premium, i.e. the Agio, or a Disagio, i.e. the issuance discount. In both cases, this leads to a reduction of returns during the investment period for the issuer with Disagio or for the investor with Agio.
Issuing shares or stakes in a GmbH may not be coupled with a Disagio in accordance with §§ 9 of the AktG and § 5, paragraph 3 sentence of the GmbHG. Foreign cash amounts, so-called sorten, are purchased by credit institutions below the officially applicable exchange rate with Disagio or sold above the exchange rate with Agio.
Unlike central banks, where buying and selling of sorten occur at official exchange rates, it is common practice for credit institutions to apply a surcharge or discount to official exchange rates. This is justified by administrative, procurement, and insurance costs. The discount applied by credit institutions amounts to around two to four percent of the nominal value of the sorten.
The Legal Basis of Disagio
Within the so-called freedom of contract, contracting parties to loan agreements are allowed to make agreements also with regard to pricing and price differentiation. The reduction of nominal interest via Disagio legally falls into the civil law area of interest, because in banking practice it has developed into a calculation factor for the assessment of interest.
In case law, the Disagio agreed between the contracting parties is regarded as a compensation dependent on the term for granting a lower nominal interest rate. In contract interpretation, the Disagio is assessed as part of the interest calculation carried out.
Legally decisive is therefore not the designation in the loan agreement as a cost or interest, but a distinction from, on the one hand, term-dependent interest and, on the other hand, term-independent loan costs arising from the loan. Whether a remuneration is classified as term-dependent interest or term-independent costs is ultimately decided on a case-by-case basis.
Disagio in the Case of Early Repayment
The obligation to refund unused Disagios in the event of early repayment of a loan depends on the individual case. Decisive for the justification of a refund or non-refund is ultimately the reason why the loan agreement was terminated early.
If a contract is terminated because the borrower exercises their right of termination under § 286 Abs. 3 BGB or § 489 BGB, or if both parties mutually agree to terminate the contract, an effective termination by the borrower is assumed. This then removes the legal basis for an unused Disagio.
In this case, the borrower has a claim for unjust enrichment fixed in § 812 Abs. 1 BGB, which is associated with a refund of the proportionate Disagio. Numerous cases in this form have already been decided by the BGH, with banks being ordered to refund proportionate and unused Disagio.
If a loan agreement with a fixed term is terminated without notice by the bank for good cause because the borrower culpably fails to meet their obligations, the bank, in turn, is entitled to damages resulting from the early termination of the contract. This is fixed in § 249 BGB. In the bank's damage calculation, the unused Disagio is treated as a non-independent billing item.
Because retained and due Disagio would have been fully consumed upon disbursement of the loan without the declaration of termination without notice, the proportionate Disagio will remain with the bank as part of the legally protected expectation of interest — and this in full.
Tax Aspects of Disagio
According to § 250 Abs. 3 HGB, a company preparing financial statements has the option to capitalize a Disagio if there is a difference between the repayment amount and the issue amount of the liability or the bond. For tax purposes in Germany, Disagio is treated as financing costs within the tax balance sheet under prepaid expenses — anchored in § 5 Abs. 5 S.1 Nr. 1 EStG.
This valuation applies if the loan term extends beyond the balance sheet date. The exercise of the commercial law option can be made independently of the tax recognition obligation. It is dissolved pro rata over the entire term of the underlying loan, applying either the step-up interest method or the straight-line amortization method.