How can you refinance a loan in Switzerland?

Refinancing a loan refers to the process of replacing an existing loan with a new, typically more advantageous loan. A loan refinancing enables borrowers to benefit from better conditions or to consolidate several loans.

The refinancing process comprises 4 steps: Analyzing the current loan, obtaining new offers, signing the contract, and executing the changes.

Refinancing offers advantages such as lower interest costs, better credit conditions, debt consolidation, and better creditworthiness, but also disadvantages such as new closing costs and possible prepayment penalties.

Credit card debt can be refinanced with personal loans to avoid the high interest rates on overdrafts.

Legally, the terms of the current credit agreement apply, although early repayment of consumer credits must be possible free of charge, according to the FLCC.

What is refinancing?

Refinancing a loan means replacing an existing loan with a new one. It is also often referred to as loan replacement or loan rescheduling. If debt is replaced during financial distress, the refinancing process is called debt restructuring.

Loan refinancing allows borrowers to change the repayment term or benefit from better conditions, such as lower interest rates. Several loans can be refinanced with a single new loan, improving the overview and usually reducing costs.

Refinancing is available in virtually all areas of the lending business, but it is most prevalent for personal loans and mortgages.

How do you refinance a loan?

The refinancing process can be described in the following 4 steps.

1. Analysis of the current loan
2. Application for a sensible offer
3. Decision and conclusion of a contract
4. Carrying out the refinancing

1. Analysis of the current loan

First, the borrower gets an overview of the existing loan, including the current interest rate, term, and other conditions. This is necessary to determine the savings potential of refinancing.

2. Applying for a sensible offer

The next step is to obtain new loan offers. This can be done via various banks or credit brokers. It is significant to compare the offers not only in terms of interest rates but also in terms of duration and additional costs. Online loan calculators are a helpful aid here, but as a layperson, it is still difficult to find the perfect loan provider.

If you want to save yourself the effort, you can apply for a new personal loan via Kredite Schweiz and get a free, non-binding quote. Enter your details and add a comment, and all relevant providers will be checked for you.

3. Decision and conclusion of a contract

The new loan agreement is concluded as soon as the borrower has found a suitable offer. The new loan is then used to pay off the existing loan in full.

4. Carrying out the refinancing

Many lenders offer to handle the repayment of the old loan straight away. Otherwise, the borrower must handle the payments themselves. If the new loan amount exceeds the existing debt, the remaining amount is transferred to the borrower’s account.

What are the pros and cons of loan rescheduling?

Loan rescheduling has both positive and negative aspects. Some calculations need to be made to determine whether the advantages outweigh the disadvantages. This requires an individual assessment of whether, for example, lower installments or lower overall costs are more important.

What are the positive aspects?

The following 5 advantages arise when rescheduling a loan.

1. Lower interest costs: Debt restructuring allows for the replacement of existing loans with new ones with lower interest rates, thereby reducing monthly interest payments and the overall cost of the loan.
2. Improved loan terms: New loans offer the chance for better terms, such as extended duration or more flexible repayment options.
3. Debt consolidation: Several loans may be combined into a single loan, facilitating debt management and lowering administrative costs.
4. Potential improvement in credit rating: On-time payments after debt restructuring improve creditworthiness and facilitate access to more favorable loan offers in the future.
5. Quick access to cash: Certain forms of debt restructuring, such as cash-out refinancing, allow the borrower to gain direct access to additional cash for urgent expenses.

What are the negative aspects?

The following 4 disadvantages are associated with debt restructuring.

1. New closing costs: New loans are associated with additional expenses such as new processing fees, notary fees, or credit check costs, which must be weighed against the long-term savings.
2. Prepayment penalties: Early redemptions of existing loans (especially relevant for fixed-rate mortgages) can incur fees that reduce or even cancel out the savings from lower interest rates.
3. Extended loan term: Although the new loan term can be extended to reduce monthly payments, this means that the borrower remains in debt for longer and may incur higher total interest costs.
4. New credit check: A new loan application leads to a new credit check. A poor credit rating will negatively impact the approval or conditions of the new loan.

When is refinancing worthwhile?

Refinancing a loan is very worthwhile in many cases. In Switzerland, you have the decisive advantage that the Consumer Credit Act stipulates that early repayment of loans must be possible at any time, free of charge. However, notice that not every loan, such as mortgages or business loans, is subject to this law.

Refinancing is worthwhile if the interest on the new loan is lower than the interest on the old loan and if the processing fees for the new loan are not too expensive.

Can you refinance if you are over-indebted?

Yes, refinancing is possible if you are overindebted. However, refinancing is less attractive in this case because the credit rating is worse than when the original loan was taken out. This means that the interest rate tends to be higher. Nevertheless, it makes sense in many cases because you can reduce the monthly installments by taking out a longer term. Refinancing may, therefore, help you reduce your debt.

Can credit cards be refinanced?

Yes, you can refinance credit card debt. It is highly recommended that you pay off the debt with a personal loan, as credit cards have extremely high interest rates of 8% to 14%. This frequently results in cost reductions of about half. You can obtain a free, no-obligation quote for refinancing credit cards on our homepage by filling in the details and adding a comment.

What legal aspects apply to refinancing?

For refinancing, the terms of your current loan agreement apply. If the Consumer Credit Act does not apply to your loan, you must carefully review your contract and determine whether any early repayment fees are mandated. If the Consumer Credit Act applies to your loan, Article 17 allows you to pay back the loan at any time without incurring fees.