Personal loans – conditions and risk factors

Personal loan eligibility criteria


It is quite common for a borrower's situation to change while they're paying off their loan. Market conditions may also vary. In these circumstances, it makes sense to check whether a cheaper loan is available.

To ensure your loan application is successful, certain conditions must be fulfilled. If they are not, your application may be rejected. This then leads to negative entries in credit databases, which will make it harder for you to borrow in the future.

First, lenders are required to verify borrowing capacity as defined in the Consumer Credit Act (KKG). This stipulates that a loan may only be granted to borrowers who are able to repay the instalments from the non-attachable portion of their income. Borrowers must also be in a position to pay off the loan including interest within 36 months.

Swiss lenders also take into account other criteria.

However, if you are planning to convert your debt (exchange an existing loan for one with a lower interest rate), it is important to obtain certain information beforehand.

Alimony

Many banks do not recognize alimony or maintenance payments as income because they are not attachable or only partially so. People who pay alimony also constitute an increased credit risk. The reason for this is that alimony must be paid even if the client suddenly earns less.

Age

No loans are granted to those under 18 years of age. As a rule, banks are more cautious with young adults because their financial situation is often unstable and the defaults correspondingly higher. Furthermore, lending money to young people is a delicate matter given the issue of juvenile indebtedness.
A maximum age limit is also frequently applied, making it harder for banks to lend to senior citizens.

Residence permit

If you do not have Swiss citizenship, your residence permit type will play a significant role in the decision to lend.
Most lenders will accept a C residence permit with no problem.
They are likely to want to examine other criteria before lending to those on a B residence permit. You usually need to have held the B permit for six months before you can get a personal loan, and you may have to pay a higher interest rate. This is because the risk of borrowers returning to their home country is statistically higher.  It is also important to remember that certain banks require you to pay back the loan before the B permit expires. This means that the instalments will be higher.
Residence permits G and L are often not accepted at all.

Debt collection procedures

Applicants cannot obtain a loan if they are involved in an on-going debt collection procedure, were subject to an attachment of earnings in the last three years or a certificate of unpaid debts in the last five years, or filed for bankruptcy in the last ten years. Those who have paid off their enforced debt will still be assessed as a higher risk by the banks. The same applies if the credit databases have registered debt collection reports about an applicant.

Employment

You will only be eligible for a loan if you have an income and have already completed your trial period successfully with your new employer. You are also at a disadvantage if you have only been in your current job for a short time. Applicants with the highest credit standing are those who have been with the same employer for a long time and have an unlimited contract. Self-employed persons and employees on a temporary contract or hourly wage can expect to be charged a higher interest rate. Clients who work on a commission basis or have a strongly fluctuating income will also have trouble obtaining a loan

Applicants working on a commission basis and having a strongly fluctuating income are rated as a greater risk than those with a steady, regular income.

Credit information

Having a negative entry recorded at the Central Office for Credit Information often makes it very difficult to obtain a loan in Switzerland. Many lenders also advertise very low interest rates. To avail of these rates, you will need to fulfil additional criteria:

  • Loan type

Cheaper products are frequently only offered to new customers. To top up your loan with the same provider, you may have to pay a higher interest rate.

  • Purpose of loan

Different interest rates may be applied according to the purpose of the loan. For example, loans to finance a vehicle purchase are usually advertised more cheaply than those for any purpose.

  • Loan amount

The minimum required amount to guarantee low interest rates varies from lender to lender.

  • Minimum salary

Another precondition often specified for low interest rate loans is a minimum level of income.

Our tip:

If you are unsure whether you fulfil the criteria, the loan specialists at Credaris will be pleased to help you find the lender that best meets your needs. Credaris is a partner service of comparis.ch.

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