The process of getting a loan: here’s how it works
Whether you’re looking to buy a car or bridge short-term financial bottlenecks, you’ve decided to take out a loan. We’ll show you how – step by step.
Step 1: Calculate your potential loan
You should check approximately how much a lender would offer you.
Your credit capacity is the key factor here. Loan amounts of up to 80,000 francs are subject to the Consumer Credit Act (KKG/LCC). To protect against over-indebtedness, the Consumer Credit Act stipulates that loans may only be approved if they are for an amount that, including interest, could be repaid within 36 months with the borrower’s attachable income.
Calculate approximately how much you can afford to borrow:
Step 2: Learn more about loan requirements and credit standing
Before you apply for a loan, you should familiarize yourself with the criteria. In addition to legal requirements and providers’ individual criteria, other factors also play a decisive role in granting loans.
Step 3: General conditions for granting loans
Lending is strictly regulated in Switzerland. Not only does the credit institution play a role here, but other organizations such as the ZEK or IKO also have an influence on the credit process. You can see these interfaces and their role in lending here:
The Central Office for Credit Information (ZEK) collects and provides information on personal loans, leases and credit cards. All credit institutions, lessors and credit card issuers with official permits are members of ZEK. The list of ZEK members is therefore the best source for verifying the reliability of a provider.
The Information Centre for Consumer Credit is a Swiss information system required by law. The IKO collects data on credit and leasing transactions of natural persons and is based on the requirements of the Consumer Credit Act.
Rights for borrowers – obligations for lenders: the Consumer Credit Act (KKG) regulates the commercial provision of consumer loans to private individuals.
Additional rules and requirements for consumer loans
Based on Article 36a of the Consumer Credit Act, members of the Swiss Consumer Finance Association have agreed to self-regulate and have signed an agreement prohibiting aggressive advertisement.
The Ordinance to the Consumer Credit Act stipulates that the Swiss Federal Department of Justice and Police (FDJP) shall set the maximum interest rate for consumer loans.
Loan granting practices are also governed by the Unfair Competition.
As financial intermediaries, lenders are also subject to the provisions of the Anti-Money Laundering Act (AMLA).
Step 4: The loan application
Have you decided to take out a loan? Read here about how borrowing works, what role the credit check plays, and what else should be considered.
Step 5: During the loan period
Yes. Borrowers may repay a loan early, including any outstanding interest, and terminate the agreement. This option, regulated by the Consumer Credit Act (KKG) is designed to ensure that consumers can exit a current agreement without obstacle. According to the KKG, “in this case […] consumers are entitled to a waiver of interest and a refund of the costs on the remaining term”.
Comparis tip:
Since in practice all costs are usually bundled into the effective interest rate, no costs are reimbursed. One common exception is payment protection insurance.
On the other hand, banks are allowed to charge processing fees for the extra administration involved in the early repayment of a loan, and frequently do so. However, as there is no interest to pay on the remaining term, the overall loan costs are reduced.
Interest on arrears is charged when borrowers fall behind on their loan payments. This is how lenders recover the costs incurred through the late payments.
If payment is late, lenders invoice the borrower for the interest amount. According to the Consumer Credit Act, they may not charge more than the effective annual interest rate defined in the personal loan agreement.
Reminder fees are also charged, which differ from lender to lender.
The amount of interest charged varies from lender to lender but may not exceed the effective annual interest rate stated in the personal loan agreement.
Lenders are also obliged to report late payments to the IKO if they add up to 10% or more of the net loan amount. They also report payment habits to the ZEK. Entries such as “slow payment” or “in arrears” have an adverse and lasting effect on a person’s credit standing .
If you cannot pay your instalments and have to arrange a special repayment plan with the bank, this is also recorded in the ZEK database and has a negative effect on your credit standing. It can therefore make sense to request an extension to your loan term or even switch lenders in order to reduce the monthly instalment amount.
Are you worried that you will have difficulty keeping up with your payments temporarily? Then it is best to act early and proactively. One option in this case would be to refinance your loan. If the loan was taken out via a credit broker, you should seek advice from them before making a decision.
Step 6: Increase and repay your loan
Find out more about when a loan repayment makes sense and how a top-up works.
