The agreement of a so-called convertible penalty has the content that the debtor can choose to withdraw from the contract against payment of the contractual penalty (= convertible penalty). The convertible penalty is only owed if the debtor withdraws from the contract. A claim for damages by the creditor is presumably excluded (the same as for the penalty). In other words, the conversion penalty enables the debtor to be unilaterally and arbitrarily released from the main obligation and thus has exactly the opposite purpose to the strengthening of the binding effect intended by the contractual penalty. In functional terms, the convertible penalty is equivalent to a fine: Both instruments facilitate the debtor's unilateral release from the main obligation.

Example of a contract penalty application case: In the case of mortgage loans with a fixed term, where by contract or on the basis of established banking practice there is the possibility for the mortgage debtor to terminate the loan prematurely against payment of an early repayment penalty.