Interest rates for personal loans have reached an all-time low, with rates as low as 4.5 percent now on offer. Borrowers taking out new loans are not the only ones who can profit from this market situation – those who already have a loan should compare providers and consider refinancing. An overview.
The battle is on, and competitive pressure is high: providers of personal loans are underbidding one another like retailers in the seasonal sales. In both cases, consumers are the winners. With personal loans, however, it may make sense not only to take out a new loan, but also to switch providers.
Here is an example calculation: According to an analysis by comparis.ch, the average interest rate at present is 8.83 percent, while the average outstanding loan amount is 15,235 francs* with a remaining term of 56.7 months. Borrowers with these conditions who switch to the cheapest offer of 4.5 percent will save 1,600 francs over the remaining term. But borrowers with this loan amount can even save if they obtain a new rate of 4.9 percent or 5.9 percent – 1,455 francs and 1,081 francs respectively. The savings are even greater for larger loan amounts, longer terms and higher interest rates.
The Consumer Credit Act (KKG) makes it possible for borrowers to switch providers. According to this law, personal loans (unlike other forms of financing) can be repaid at any time before maturity without the borrower incurring any additional charges. Thanks to this provision, all loans can be repaid and transferred to another (cheaper) lender. Find out here how exactly a switch works.
Seek advice before switching
Low interest rates may seem attractive, but borrowers should be cautious, as they are usually little more than headline rates. These super-low rates are in reality only available to very few prospective borrowers, as this analysis shows.
Comparis tip: Ask an independent advisor to review your savings potential free of charge and without any obligations. The specialists at Comparis partner service Credaris can help you with this. Thanks to their many years of market experience, they can make a realistic estimate of the interest rates that banks can be expected to offer based on the borrower’s personal financial situation, and are thus able to tell whether a switch would make sense.
Avoid an entry with the ZEK (Central Office for Credit Information)
It is important to compare products and obtain independent advice before refinancing to avoid a negative entry with the Central Office for Credit Information (ZEK). All loan applications are reported to the ZEK. Loan application rejections recorded following a negative credit check are saved for two years and can be viewed by all banks. Anyone who has been refused a loan once will find it considerably more difficult to receive a low interest rate or even to obtain a loan at all. Therefore, you should avoid completing your loan application in haste without doing the necessary research if you do not want to limit your chances of obtaining a (low-cost) loan.
To find out more about loans, please see our guide.
*Source: Central Office for Credit Information (ZEK)