Debt Capacity Checks: Common Errors

If you want to get a loan, you will have to undergo a debt capacity check. The results of this check determine whether or not you can get a loan, and how big a loan you can get. It is the lender’s responsibility to check your debt capacity, not yours.

There are a number of errors which lenders can make when calculating your debt capacity, and in the worst case these mistakes can result in a situation where you are incapable of paying off your debts. If the lender is too lax in their calculations, you may end up getting a bigger loan than you are actually able to manage. Debt consultation offices frequently point out these common errors made by banks and other lenders:

• Not making an initial assessment

Lenders are legally obligated to clarify your financial situation in advance in order to calculate your budget. Responsibility for checking your debt capacity rests with the loan provider, and cannot be passed on to you as the customer. If the lender does not perform a detailed assessment, they cannot later argue that you agreed to their incorrect budget calculations by signing them.

• Not inquiring about your individual expenses

When a lender performs a debt capacity check, they have to clarify all of the points listed in the guidelines for determining what your debt-collection poverty line. These points include things like your living expenses, social security contributions, and unavoidable occupational costs. You can find all of the relevant points listed in the guide to debt capacity checks. If the lender fails to clarify any one of these points, then they are not meeting their necessary due-diligence requirements.

• Using flat sums instead of actual costs

Determining a prospective borrower’s poverty line is a key part of debt capacity checks. The consumer credit law explicitly states that expense calculations have to account for the actual rent you pay for your home, and not just a typical rent in your area. The viewpoint taken by Swiss debt consultation offices is that debt capacity checks should always be based on your actual expenses. But in some cases, banks use approximate flat sums for calculations instead – even when calculating expenses for which using the actual amounts is clearly required.

• Not accounting for costs related to earning your living

There may be things which are indispensable for you, such as a car which you need in order to practice your occupation. If you need your car to get to work, then the fixed and variable costs associated with your car count towards your poverty line. The lender has to account for these expenses when calculating your budget. You are not required to prove that something is indispensable for you. For the debt capacity check, you simply need to state the total of indispensable expenses related to your earning a living (such as commuting to work).

• Not accounting for foreseeable changes to your financial situation

While poverty line calculations only account for your current situation, lenders should also look at how your financial situation could change within the next 36 months. If it is likely that a person’s income will significantly decrease or that their expenses will go up in the near future, then these changes should figure into poverty line calculations. For example, a bank cannot assume that a woman who is pregnant and plans to reduce her work hours after her child’s birth will continue earning the same amount of income. An upcoming retirement is another example of a change of situation which has to be accounted for when calculating income.

What should I do if I find mistakes in my debt capacity check?

Do not sign the lender’s budget estimate if you believe that it was not calculated correctly, or if any of the information in it is incorrect. If you only notice a mistake once you already have a loan agreement, consider getting legal advice. If you have legal insurance, check whether it gives you complimentary access to legal consultation.

Do not simply stop making your loan repayments, even if you find out that the lender made a mistake when calculating your debt capacity. If you fail to make payments, the lender will likely open a debt-collection case – and even if you file an objection, the lender may still win the case.

Do I have to repay a loan if the debt capacity check was not done correctly?

If a lender makes a mistake when calculating a person’s debt capacity, there is a chance that they will lose their right to claim repayment of the loan, or to claim interest payments. But this is decided by a judge on a case-by-case basis, so you cannot assume that you will not have to repay a loan just because you believe that errors were made by your bank.

Where can I get help if I have difficulty repaying a loan?

If you have debts, the best place to go for advice is your regional debt collection office. Additionally, you can find practical tips for becoming debt-free here. If you suspect that your inability to repay a loan is the result of mistakes made by your lender when checking your debt capacity, you should seek help from legal experts. This legal consultation may be included in your legal insurance.

More on this topic:
Debt capacity checks explained
Practical steps towards becoming debt-free
How to deal with debt collection in Switzerland