What types of loans are available in Switzerland?
The most common types of loans are consumer loans, education loans, and mortgages. Consumer loans include personal loans, small loans, car loans, and peer-to-peer (P2P) loans used for personal expenses. Education loans include student loans and continuing education loans that provide financial support to students and continuing education participants. Business loans, such as working capital and investment loans, help companies finance operating costs and investments.
Mortgage loans finance real estate purchases and can be taken out as fixed-rate mortgages with fixed interest rates or Saron mortgages with variable interest rates. There are also construction loans for new buildings.
Special loans include credit cards, bridging loans, green loans for sustainable projects, development loans for projects in developing countries, and disaster loans for emergencies.
In Switzerland, loans are granted by banks, credit institutions, P2P platforms, and insurance companies. Lending is regulated by the Federal Consumer Credit Act to protect consumers. Risks include over-indebtedness, rising interest rates, and individual project risks for special loans.
Unsecured loans do not require collateral and are based on the borrower’s creditworthiness. Secured loans require collateral such as real estate or cars.
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What types of consumer credit are there?
There are various designations for loans that are considered consumer loans. All types of consumer loans can be applied for on our homepage. In addition to personal loans, which are classic consumer loans, there are also small loans, car loans, and P2P loans.
1. Personal loan
Personal loans (consumer loans) cover amounts between CHF 500 and CHF 80,000 and have a minimum term of three months. They are used for personal expenses such as vacations or renovations. The maximum effective annual interest rate is currently 12 percent. The Federal Consumer Credit Act (FLCC) is in charge of regulating these loans.
2. Small loan
A small loan is a term for a personal loan with a smaller amount that is used for unexpected expenses such as bills or new appliances. Small loans offer fast payouts and simple application procedures, especially with digital providers. Loans over CHF 500 are considered regular consumer loans. There is no official maximum limit for small loans, as the term is unofficial.
3. Car loan
In Switzerland, car loans are regular consumer loans. It does not matter whether the loan is applied for as a car loan or a personal loan. Whether the loan is used to buy a car is a private matter in Switzerland.
3. Peer-to-peer loans (P2P)
Peer-to-peer loans (P2P) enable private individuals to lend directly to other private individuals. P2P loans are used for similar purposes to normal consumer loans and often offer lower interest rates as the P2P platforms have lower operating costs. However, borrowers and investors bear higher risks, as lending without banks entails greater uncertainties.
What educational loans are there?
Educational loans are student loans and continuing education loans. In Switzerland, student loans are mainly issued by the cantons. Continuing education loans are mainly issued by credit institutions.
1. Student loans
Student loans support students financially during their studies. In contrast to scholarships, student loans must be repaid, but usually only after completion of the studies. The repayment conditions are generally remarkably good, with favorable interest rates and long-term terms to make it easier to start a career. Some cantons also offer interest-free or very low-interest loans. Prerequisites for a student loan are a certificate of enrollment and often a guarantee.
2. Continuing education loans
Continuing education loans are loans that are used specifically for educational purposes. In Switzerland, continuing education loans are subject to the FLCC and are legally seen as consumer loans. However, lenders offer better interest rates if the loan is verifiably used for further education.
What business loans are there?
A business loan is financial support for companies to cover operating costs, investments, and other business purposes. Business loans are not subject to the FLCC, so they are flexible regarding contractual arrangements.
1. Working capital loan
A working capital loan is used for the short-term financing of a company’s current assets. It is often granted as an overdraft facility on the current business account and is ideal for bridging liquidity bottlenecks.
2. Investment loan
Investment loans finance long-term purchases such as machinery, vehicles, or real estate. They help companies to make significant investments that are necessary for growth or competitiveness.
3. Microloans
Microloans are aimed particularly at small companies and start-ups that only require small amounts of credit. Microloans frequently support business ventures that are ineligible for conventional bank loans due to their small amount. Microloans have lower collateral requirements, making them particularly attractive to young companies.
4. Loans for social enterprises
Social enterprises that primarily pursue social or ecological goals have the opportunity to take out special loans with special conditions. Development banks and certain financial institutions offer loans for social enterprises.
What mortgage loans are there?
Mortgage loans are loans used to finance the purchase or construction of a property. The borrower receives a large sum from the bank and pays it back in monthly installments over a period of time. The mortgage is secured by the property, meaning the bank may sell the property if the borrower fails to make the payments. There are different types of mortgages, such as fixed-rate mortgages with fixed interest rates and variable-rate mortgages whose interest rates change depending on market conditions.
1. Fixed-rate mortgages
A fixed-rate mortgage is a type of mortgage where the interest rate is fixed for the entire term of the loan. Terms for fixed-rate mortgages typically vary between two and ten years but can be as long as 15 or 20 years. The fixed interest rate offers the borrower planning security and protects against interest rate changes on the market. During the term, the monthly costs remain constant, which enables clear budgeting. One disadvantage, however, is that the borrower does not benefit from falling market interest rates.
2. Saron mortgages
Saron mortgages are variable mortgages and depend on the interest rate of the Swiss reference interest rate SARON (Swiss Average Rate Overnight). Saron is based on actual transactions in the overnight money market and is recalculated daily to reflect current market conditions. The mortgage interest rate adjustments are usually made quarterly or semi-annually, depending on the agreement. This means that the costs for the borrower fluctuate to varying degrees depending on market developments. Variable-rate mortgages are more flexible than fixed-rate mortgages and benefit from falling market interest rates. However, variable-rate mortgages also carry the risk of rising market interest rates.
3. Construction financing
Construction financing is specially designed to finance new buildings or major renovation projects. In most cases, construction financing is divided into phases, with the loan being paid out in tranches as construction progresses. This allows builders to adjust the financing to the actual financial requirements during construction. Construction loans are converted into mortgages once the construction project has been completed. The mortgage form can be concluded as a fixed-rate mortgage or as a variable-rate mortgage.
What special forms of loans are there?
There are numerous special forms of loans, which are granted under many different names. The most commonly used special forms of credit are the following.
- Credit cards
- Bridging loans
- Green loans
- Development loans
- Disaster loans
1. Credit cards
Standard credit cards have an installment facility, which is used as an overdraft facility. When using the installment facility and paying in installments, interest is charged, which varies depending on the provider. In Switzerland, it is usually between 8% and 14%. The maximum permitted interest rate for overdrafts in Switzerland is currently 14%. Credit cards are handy for short-term financing. They sometimes also offer additional benefits, such as insurance coverage or bonus programs.
2. Bridging loans
Bridging loans are short-term loans that close financial gaps until long-term financing is secured. Companies use them to bridge liquidity bottlenecks or to cover unforeseen expenses. These loans carry high interest rates and should be repaid as quickly as possible.
3. Green loans
Green loans finance environmentally friendly projects and sustainable investments. Green loans support projects such as the construction of energy-efficient buildings, the installation of solar systems, or other environmentally friendly technologies. The conditions are more favorable than with conventional loans in order to promote sustainability. Banks offer these loans to support environmentally conscious action and help reduce CO2 emissions.
4. Development loans
Development loan is a term used for multiple things. In the context of this article, development loans are special loans granted to promote economic and social development. International organizations and development banks issue development loans to support local projects in developing countries. Typical projects include the construction of infrastructure, the improvement of the education system, or the promotion of agricultural initiatives.
5. Disaster loans
Disaster loans are emergency loans made available quickly to deal with the consequences of natural disasters or other unforeseeable events. Disaster loans assist regions or businesses in reconstructing after immediate damage from disasters. They are offered at low interest rates and with flexible repayment terms in order to help those affected as effectively as possible.
Who grants the different types of loans?
In Switzerland, loans are granted by banks, credit institutions, P2P platforms, insurance companies, and development banks. You can find out more about loan providers in the Kredite Schweiz article on this subject. Major banks such as UBS and Zürcher Kantonalbank offer a wide range of loan types, including consumer, mortgage, and business loans. Specialized credit institutions like Cembra Money Bank and Cashgate focus on consumer loans and leasing. Insurance companies such as Swiss Life and AXA also offer mortgage loans. P2P platforms such as Lend and Cashare facilitate personal loans directly between private individuals. Banks such as Alternative Bank Switzerland (ABS) provide loans for sustainable projects.
How is lending regulated in Switzerland?
Lending in Switzerland is regulated by the Federal Consumer Credit Act and the Swiss Code of Obligations. The Consumer Credit Act (FLCC) stipulates that credit agreements must be transparent and comprehensible, and it protects consumers from over-indebtedness through a mandatory credit check. In the case of mortgage loans, the regulations of the Swiss Financial Market Supervisory Authority (FINMA) play an important role by setting minimum requirements for the equity ratio and the affordability of the mortgage. Corporate loans are subject to less stringent regulations, as they are not subject to the FLCC, but here, too, the company’s creditworthiness is meticulously analyzed.
What challenges and risks need to be considered?
The challenges and risks of borrowing in Switzerland primarily include the risk of over-indebtedness, particularly with consumer loans and credit cards. Mortgage loans carry the risk of rising interest rates. Corporate loans carry the risk of insolvency if the company does not achieve the planned income. Green loans and development loans are often associated with specific project risks, such as the failure of sustainability projects or unforeseen political changes in developing countries.
Unsecured loans do not require collateral such as real estate or cars and are based solely on the borrower’s creditworthiness, such as consumer loans and credit cards. Secured loans, such as mortgages, require collateral that the lender may realize in the event of insolvency.
