How to qualify for a loan despite debt enforcement?

Obtaining a loan despite past debt enforcement proceedings is difficult in Switzerland, but not impossible. While ongoing debt enforcement prevents borrowing from official providers, as this is considered a clear sign of a lack of solvency, the situation is better for people with past debt enforcement. Specialized financial institutions and private lenders are sometimes willing to grant loans to former debtors under stricter conditions and higher interest rates.

After debt enforcement, the main problems are significantly worsened credit ratings due to a negative payment history and a strained financial situation. To successfully apply for a loan, improving your credit rating as quickly as possible and seeking personal discussions are paramount.

Alternatives for debtors include various financing options such as peer-to-peer lending platforms, loans from friends and family, crowdfunding, or advances from employers. However, higher interest rates and the risk of dubious providers must be considered.

Can you get a loan despite debt enforcement?

If you have ongoing debt enforcement proceedings, it is impossible to get a loan from an official credit provider. It is illegal for credit institutions to give loans to people who are not solvent. Ongoing debt collection is a clear sign that there is currently no creditworthiness. It is impossible to pay off the debt of a current debt collection by taking out a loan.

However, it is possible to obtain a loan in Switzerland despite having had past debt enforcement proceedings. However, if you have debt enforcement in the register, it is significantly more difficult than without. Past debt enforcement proceedings are evidence of payment difficulties, and as a result, lenders are reluctant to grant loans to people with a history of debt enforcement, as the risk of default is considered high.

Some specialized financial institutions and private lenders are willing to lend to people with a history of debt collection but at significantly higher interest rates and under stricter conditions. Generally, the smaller the amount owed, the better the chances of obtaining a loan.

Is it legal to take a loan after debt collection proceedings?

Swiss law does not generally prohibit the granting of loans to people with a history of debt collection, but the Consumer Credit Act (FLCC) and the practice of lenders set strict guidelines to prevent over-indebtedness. According to Article 28 of the Consumer Credit Act, lenders are legally obliged to check solvency carefully. As it is forbidden to grant loans if they lead to over-indebtedness, a check of solvency, creditworthiness, and the debt collection register is usually carried out. The assessment is left to the lender.

What is the problem after debt enforcement?

The problem after debt enforcement in relation to taking out a loan has two origins. Firstly, the credit rating has deteriorated significantly due to the negative payment history. Secondly, your finances are in a slump simultaneously, so a loan would be particularly useful right now.

Deteriorated creditworthiness

Debt enforcement leaves an entry in the debt enforcement register that significantly impairs a person’s creditworthiness. Debt collection register entries contain information such as the name of the debtor, the name of the creditor, the amount of the debt, the progress of the proceedings, and the current status. This entry is a clear signal to potential lenders that payment obligations have not been met or only partially met in the past.

Credit standing, which consists of solvency and creditworthiness, gets weakened for a long time by entries in the debt collection register. The conditions under which a loan is granted are strongly based on the applicant’s creditworthiness. A deteriorated credit rating thus leads to poor credit conditions.

Financial hardship

The costs associated with debt collection put further strain on the financial situation of the affected. Debt enforcement often leads to a vicious circle of debt and financial difficulties.

Debtors must contend with limited financial leeway, as their income is burdened by garnishments or the repayment of existing debts. This limits their ability to respond to unforeseen expenses or reduce existing debts, increasing the likelihood of further financial problems. Rebuilding a stable financial situation and credit rating after debt enforcement takes time and discipline.

How do you apply for a loan after debt enforcement?

In order to submit a credit application after debt enforcement that has a chance of success, you need to pay particular attention to two points. Firstly, it is a good idea to seek personal discussions with lenders. Secondly, it is all the more important to improve your credit rating as quickly as possible.

Negotiations

Before applying for a loan, holding direct talks with potential lenders is advisable. Most banks and credit institutions offer personal consultations in which you can explain your situation and show interest in finding an amicable solution. In these meetings, you should be transparent about the reasons for the debt collection and the steps you have taken to improve your financial situation. It is important to build trust and demonstrate that you are handling your finances responsibly.

Some lenders are willing to work out individual conditions under some circumstances. Collateral, such as guarantees or tangible assets, increases the willingness of lenders to approve a loan application despite a debt enforcement register entry.

Improve creditworthiness

Improving your credit rating is generally a good idea before applying for a loan. If you have had debt enforcement proceedings, it is all the more important to demonstrate a solid ability and willingness to pay back lenders. There are numerous ways to improve your credit rating, including the following 2.

Wait for the statute of limitations

In Switzerland, debt collection entries remain visible in the register for 5 years. If your debt enforcement proceedings date back a few years, it is smart to wait until the entry is deleted before applying for a loan to improve your credit rating. During this time, it is advisable to meet all financial obligations on time and, of course, to avoid new debts.

Have your ZEK cleared

The Central Office for Credit Information (ZEK) plays a central role in the granting of credit in Switzerland, as it collects information on the payment behavior of consumers. It is possible to have incorrect or outdated entries corrected. To do this, you must apply to the ZEK to have your own data checked. If errors are found, correcting the entry will improve your credit rating and your chances of obtaining a loan. Companies such as “Credxperts” offer to do this for you.

Which providers offer the best opportunities?

The best providers for people with prior debt collection records depend greatly on the individual case, specifically on how severe the debt collection was and the overall creditworthiness aside from that incident. The easiest approach is to hire a service that analyzes creditworthiness and requests tailored offers from potential lenders on your behalf.

You can find an offer form on our homepage. If you enter your information there, you will receive some suitable offers within the next few days. It is non-binding and free of charge. Your creditworthiness and your situation will be analyzed, and the most suitable lenders in Switzerland will be requested for an offer.

If you are currently still in the debt collection process, you have no chance of obtaining a loan from an official Swiss lender. In this case, you only have the following 3 options.

• Payment of the debt with your own funds.
• Negotiate with the creditors about the debt collection.
• Obtain loans from alternative credit providers.

What alternatives are there to traditional credit providers?

In addition to traditional banks and credit institutions, there are various alternative financing options for people with a history of debt enforcement. The following 3 options are relevant.

1. Peer-to-peer lending platforms (P2P): Online platforms that connect borrowers directly with private investors offer an alternative to banks. As lending decisions are not based exclusively on traditional creditworthiness criteria, P2P providers make it possible to obtain loans under more flexible conditions.
2. Loans from friends and family: A loan from a personal network is also a viable option. These loans are free or with lower interest, and the repayment terms are more flexible. However, it is important to put such agreements in writing to avoid misunderstandings and to avoid straining relationships.
3. Advances from the employer: In some cases, receiving an advance on salary or a loan directly from the employer is possible. Of course, this option depends heavily on the employer’s willingness and possibilities.

What risks do you need to take into account?

When looking for credit despite debt collection and using alternatives to traditional credit providers, several risks need to be carefully weighed. In addition to the general credit risks, there is, above all, the danger of being taken in by dubious providers. To avoid this risk, it helps to read reviews or independent analyses of the company.