Loan eligibility criteria in Switzerland

According to the Consumer Credit Act (link not available in English), the first step in getting a loan is checking your credit capacity.

• Definition of a consumer loan: according to the Consumer Credit Act (KKG), consumer loans are loans of between CHF 500 and CHF 80,000 offered by commercial providers of financial services. Lower or higher amounts are not subject to the KKG.

• Providers according to the KKG: providers of peer-to-peer loans have also been subject to the Consumer Credit Act (KKG) since April 2019.

• Legal requirements: according to the KKG, a borrower must be creditworthy. This means that a loan may only be granted if the borrower can pay off the loan amount, including interest, with the attachable part of their income within 36 months. This applies even if a longer duration is chosen.

If you are too old or too young, you may not be granted a loan.

• Minors: no loans may be granted to persons under the age of 18 in Switzerland.

• Persons up to the age of 25: applicants up to the age of 25 may be subject to additional restrictions, such as an increased interest rate or limit on the loan amount. As a rule, banks are more cautious with young applicants. The reason: generally speaking, the financial situation of young people is not yet stable and the default risk is therefore considered to be higher.

• Pensioners: after retirement, it is difficult to obtain a loan. The reason: retired people have no regular (and therefore attachable) income. The OASI (AHV/AVS) state pension is not attachable, and may therefore not be calculated as income. Secured loans are excluded from this. They can be an alternative for homeowners, for example. In addition, older borrowers are often required to repay the loan by a defined age. The exact terms vary from one insurer to another.

A distinction is made between people with and without regular income. The second category includes temporary workers, self-employed people and those on an hourly wage.

• Permanent employment: you will only be eligible for a loan if you can prove you have an income and have already successfully completed your probation period. If you have only recently become employed, you may have to expect higher interest rates or less favourable conditions. If you have worked for the same employer for a long time and are employed indefinitely, this tends to have a positive effect on interest rates.

• Temporary employment: you have a chance of getting a loan, but you have to expect higher interest rates.

• Self-employment: in Switzerland, self-employed people are those with a sole proprietorship, as well as shareholders of an AG or a limited liability company (GmbH). For the self-employed, it may not be easy to get a loan, but in principle it is possible. Financial institutions are reluctant to grant regular personal loans to self-employed people for various reasons. The most important thing: the income of self-employed people fluctuates and is less predictable than the salary of employees.

• People employed on an hourly basis are generally not accepted for a loan if no constant income can be proven over a longer period of time.

If you have already filed for bankruptcy, you will not be able to get a loan. Even debt collection that has been paid off has a negative impact on the applicant.

• Ongoing debts: with ongoing debts, the chance of getting a loan is low. Debt collection procedures damage creditworthiness and increase the assumption that a loan will not be repaid. However, in the case of a single instance of debt collection, some institutions examine the specific case. Read more here: loans with bad credit: is it possible?

• Paid debt enforcement: banks generally rate credit applicants with past debt enforcement as being higher risk. This is also the case if the debt has been paid off. This is because the payment behaviour is classified as poorer. However, a loan approval is possible, and depends on the number, type and value of the debt enforcements as well as the time of settlement. Paid debt collection is therefore assessed individually, but has a detrimental effect on the conditions.

• Bankruptcy/seizures: if you have ever had your assets seized or have had to file for bankruptcy, you will not receive a loan.

Credit standing

If you are classified as financially trustworthy, you will receive a lower interest rate.

• Credit standing and creditworthiness: credit standing and creditworthiness refer to how likely it is that the customer will pay back their loan. To determine this, their financial trustworthiness is assessed. This includes previous payment behaviour, including current or concluded leases, outstanding liabilities as well as debt enforcement and collection measures.

• Credit databases and credit agencies: lenders gather this information from credit databases and the Central Office for Credit Information (ZEK), as well as debt collection agencies and residents’ registration offices. In Switzerland, there are four major credit agencies that collect and provide credit data: CRIF, Intrum Justitia, Bisnode and Creditreform. The data collected there will only be requested if there is a legitimate interest in doing so.

• Interest rate: the default risk determines whether and under what conditions a loan is granted. In general, if the bank classifies the customer as risky, the interest rate of the loan increases. If the default risk is assessed as low, the interest rate is usually also lower.

If you are not a citizen of Switzerland or Liechtenstein, your residence status will affect your borrowing.

• C permanent residence permit: most lenders will accept a C residence permit.

• B residence permit: with a B permit, a loan is only possible after a certain period of time following the date of issue. This varies from bank to bank. Under certain circumstances, the interest rate may be increased or there may be a restriction on how high the loan can be. This is because the applicant is statistically more likely to travel back to their country of origin. Some banks require the loan to be repaid by the time the person’s B permit expires.

• Residence permits G and L: these permits are generally not accepted.

Whether or not you have children and pay or receive alimony is also included in the credit provider’s assessment. How this affects your loan opportunities and interest rates depends on your other financial conditions, especially your income.

• Paid alimony: alimony or maintenance contributions count as monthly expenses. They must be taken into account for the credit institution’s calculation of credit capacity.

• Received alimony: many banks do not recognize alimony or maintenance payments as income because they are not attachable, or are only partially so.

• Income and children: alimony is taken into account as expenses and income in the budget. But children also influence the income and expenditure situation of a household, and are therefore also included in the detailed budget review.