In this article:
- The eligibility criteria applicable to loans
- The factors influencing the rates and conditions offered
- How to improve your chances of being approved for a loan
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Loan eligibility criteria in Switzerland
You are considering taking out a loan to finance a house move or car purchase, for instance, but are unsure of the requirements? The interest rate and conditions you will be offered depend on the lender’s own specific criteria. The main criteria include age, employment, debt collection orders, credit standing, residence permit and child maintenance / alimony payments. If a loan application is rejected, an entry is recorded in the database of the ZEK (Central Office for Credit Information), which can make it more difficult to be approved for a loan in the future. That’s why it's important to familiarize yourself with the key requirements for a successful loan application. Here's an overview of the most important criteria:
The main criterion for being approved for a consumer loan is your credit capacity or credit rating, as defined in the Consumer Credit Act.
- Definition of consumer loan: according to the Consumer Credit Act (KKG), a consumer loan is a loan of between CHF 550 and CHF 80,000 offered by commercial providers of financial services. Lower or higher amounts are not subject to the Consumer Credit Act.
- Lenders subject to the Consumer Credit Act: providers of peer-to-peer loans have also been subject to the Consumer Credit Act since April 2019.
- Legal requirements: the Consumer Credit Act stipulates that a borrower must be capable of paying back a loan. This means that a loan can only be approved if the borrower is in a position to repay the loan amount, including interest, within 36 months using the attachable portion of their income. This also applies if a longer loan term is chosen.
You may not be approved for a loan if you are too old or too young.
- Minors: persons under 18 years of age may not take out a loan in Switzerland.
- Persons under 25 years of age: additional restrictions may apply to applicants under the age of 25, such as a higher interest rate or a limited loan amount. Lenders are generally more cautious with young applicants because their financial circumstances are usually less settled and the risk of default is deemed to be higher.
- Pensioners: it is difficult to get a loan after retirement. This is because pensioners have no regular – and therefore no attachable – income. The OASI (AHV/AVS) pension is not attachable and therefore does not count as income here. Secured loans are a different matter and may be a feasible alternative for homeowners, for example. Older borrowers are also often required to repay their loan by a particular age. Conditions vary from lender to lender.
Basically, a distinction is made between persons with and persons without a regular income. The latter include temporary employees, self-employed people and those employed on an hourly basis.
- Employees with a permanent contract: you are only eligible for a loan if you have proof of income and have already successfully completed your trial period with your new employer. If you have only recently been hired as an employee, you may have to accept higher interest rates or less favourable conditions. If you have been working for the same employer for a long time and have a permanent contract, you will generally be offered lower interest rates.
- Employees with a temporary contract: temporary employees can usually get a loan but can expect to pay higher interest rates.
- Self-employed persons: in Switzerland, self-employed persons are those registered a sole proprietor, an AG/SA or a GmbH/SARL. It is not easy for self-employed people to obtain a loan but it is theoretically possible. For various reasons, lenders exercise caution when it comes to offering standard consumer loans to self-employed people. The main reason is that their income is irregular and less predictable than the salary of an employed person.
- Those employed on an hourly basis: people employed on an hourly basis cannot usually obtain a loan if they cannot prove they have a regular income over a long period.
✔ If you have a long-term, regular income, your chances of a positive response to your loan application are better than for those with highly irregular incomes.
☓ A highly irregular income can also have a negative effect on the interest rates and conditions offered. The same applies to those receiving commission-based pay.
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Debt collection orders / bankruptcy
Anyone who has filed for bankruptcy will not be eligible for a loan. Even debt collection orders that have been settled will negatively affect loan applications.
- Open debt collection orders: anyone with open debt collection orders has little chance of obtaining a loan. Debt collection orders signal a greater risk that the loan won't be repaid and therefore damage a person's creditworthiness. However, applicants with a single debt collection order may be considered by some lenders on a case-by-case basis.
- Settled debt collection orders: lenders generally classify loan applicants with past debt collection orders as high-risk. This applies even if the orders have been settled, as the applicants are deemed to have a poor payment history. Nevertheless, a loan is not out of the question. It depends on the quantity, type and the amounts owed in each case, and when the orders were settled. In other words, settled debt collection orders are considered on a case-by-case basis, but tend to have a negative effect on the conditions offered.
- Bankruptcy / seizure of assets: if you have filed for bankruptcy or had assets seized, you will not be able to get a loan.
If you are rated as financially trustworthy, you will be offered a lower interest rate.
- Credit standing and creditworthiness:credit standing or creditworthiness refers to the likelihood of a customer repaying a loan. This requires an assessment of the customer's financial trustworthiness. To this end, lenders consider the customer’s payment history, including current and past lease agreements, outstanding debts and debt collection orders and proceedings.
- Credit databases and agencies: lenders source their information from credit databases, the Central Office for Credit Information (ZEK), debt collection offices and residents' registration offices. In Switzerland, there are four major credit agencies that collect and provide credit data: CRIF, Intrum Justitia, Bisnode and Creditreform. Only those with a legitimate interest are entitled to request data from these agencies.
- Interest amount: the default risk determines whether and under what conditions a loan will be offered. Generally speaking, if a lender rates a client as risky, the interest rate will be higher. If the default risk is low, the interest rate is usually also low.
If you do not have citizenship in Switzerland or Liechtenstein, the type of residence permit you have will affect your chances of getting a loan.
- Settlement permit C: most lenders accept a C permit.
- Residence permit B: if you have a B permit, you might only be approved for a loan after a certain time has elapsed since the date of issue. This varies from lender to lender. You may be offered a higher interest rate or a limited loan amount. This is because of the statistically higher probability that you will return to your home country. Some lenders require the loan to be repaid by the time the B permit expires.
- Residence permits G & L: these permits are not usually accepted.
Child maintenance / alimony
Lenders also take into account the issue of whether you have children and pay or receive maintenance payments. How this affects your chances of a loan and the interest rate offered depends on other financial factors, especially your income.
- Child maintenance paid: alimony or maintenance payments count as part of your monthly outgoings and must be taken into account by the lender when calculating your credit capacity.
- Child maintenance received: lenders often don’t class receipt of maintenance payments as income, as these payments are usually not, or only partially, attachable.
- Income and children: child maintenance payments are included as income or expenditure in the budget. But the children themselves also affect the income and expenditure situation of a household and are therefore also included in the detailed budget review.
How to improve your chances of being approved for a loan
Whether you will be offered a loan, and at what rates and conditions, depends on various factors. The most common have already been discussed in this article. In addition, lenders specify their own additional criteria, which are not necessarily communicated to customers or the general public for security reasons. It is therefore difficult for borrowers to gauge their personal chances of success and select the right lender to apply to. Simply sending off applications to one or more lenders on the off chance means you risk not being approved. Around half of all loan applications in Switzerland are rejected. Every rejected loan application is registered with the ZEK and can be viewed, along with the reason for rejection, by member lenders for a period of two years. This can negatively impact your chances of obtaining a loan in the future. However, the reason for the rejection is not usually communicated to the borrower. As open applications are also registered with ZEK, lenders will know if you have submitted multiple applications at the same time. This may also reduce your chances of success.
Caution advised: loan rejections are recorded with the ZEK and may reduce your chances of being approved in the future.
If you want to submit your application to the lender most likely to accept it, Credaris, a partner service of Comparis, would be pleased to help. The experts at Credaris will review your enquiry free of charge and with no obligation, and submit an application to a lender with your approval. This way, you benefit from specialist expertise and experience and receive recommendations on the loan that’s best for you. This increases your chances of a positive outcome and significantly reduces the risk of negative entries being recorded at the ZEK.
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Approval of a loan is forbidden by law if it would lead to over-indebtedness (Art. 3 UWG).