Learn about the kinds of loans for private individuals in Switzerland and find out which type of loan is right for you in this guide.
What kinds of loans can you get in Switzerland as a private person and which kind of loan is best for you? Here, moneyland.ch provides an overview of the loan types which are widely available to Swiss consumers.
1. Personal loans
A personal loan is a loan which is given to you based on your creditworthiness. Instead of pledging collateral that the lender can seize if you do not repay the loan, you must meet the requirements for getting a personal loan. How the loan will be used is generally irrelevant.
Personal loans always have a predefined loan term over which you must make regular payments to pay off the loan. Personal loans from Swiss lending institutions are consumer loans and are governed by the Swiss consumer credit act. You have the right to repay a personal loan early without penalties, though some lenders charge a fee for the final statement when you do this.
Because personal loans are not secured by collateral. Failing to meet loan repayments will negatively impact your credit score. After several late payment reminders, the lender can initiate debt collection procedures to recover the unpaid debt. This can negatively impact many areas of your life, including your ability to rent a home or even your eligibility for certain jobs.
The interest rates are relatively high because the loan is not secured by collateral. You should only use personal loans if you are not eligible for cheaper kinds of loans. The interactive Swiss personal loan comparison makes it easy to compare the current interest rate ranges of different offers.
Annual interest rates for Swiss personal loans (April, 2024): 4.5 percent to 11.95 percent, depending on the lender and your creditworthiness. No additional fees apply (exception: You may be charged a fee for the closing statement if you repay your loan ahead of schedule). Use the interactive Swiss personal loan comparison to find the latest interest rates.
2. Peer-to-peer loans
A peer-to-peer (P2P) loan is a loan from private individuals who lend money through an online peer-to-peer lending platform. The requirements for getting a peer to peer loan are largely identical to those for getting a personal loan. Like personal loans, peer to peer loans generally have a fixed loan term and a fixed interest rate, and can be repaid ahead of schedule. You can find more information in the guide to Swiss peer-to-peer loans.
Like personal loans, peer to peer loans are not secured by collateral. Failing to meet your loan repayments can result in debt collection. Your credit score will also be impacted.
Annual interest rates for Swiss peer to peer loans (April, 2024): 3.90 percent to 11.95 percent, depending on the lender and your creditworthiness. Additional fees may apply, depending on which platform you use.
3. Credit card loans
A credit card loan occurs when you do not pay your credit card bill on time and in full. Credit card loans are governed by the Swiss consumer credit act. They do not have a fixed loan term. As long as you make a minimum required monthly payment, you can continue to use your credit card within the scope of your line of credit.
You pay interest based on the amount you borrow and the length of time over which you carry the debt. The interest rates of credit cards are high, as shown in the guide to credit card interest rates.
Your line of credit is based on your creditworthiness and is not secured by collateral. If you do not make at least the minimum payments, the lender may eventually file a debt collection case against you. Your credit scores will also be affected.
Annual interest rates for Swiss credit card loans (April, 2024): 9.4 percent to 14 percent, depending on the card issuer. The interest rates of credit card loans include standard administrative fees.
4. Loans from private individuals
A private loan is a loan from a family member, acquaintance, or other private individual. The advantage of private loans is that the lender may have a better understanding of your situation, and therefore might charge you less interest.
Although Swiss law allows for verbal agreements, it is beneficial to create a loan contract on which the loan amount, interest rate, and repayment schedule are clearly defined. It is also beneficial if the lender creates receipts when payments are made. Properly documenting private loans provides written proof for tax purposes, and also gives the lender a legal basis for pursuing unpaid debts.
Private loans must be declared in your Swiss tax returns. The lender must declare interest earned as income, and you as the borrower can deduct the interest paid for the loan.
Although the lender and borrower are generally free to agree on an interest rate of their choice, there have been instances of extraordinarily high interest rates being declared invalid by Swiss courts. The maximum interest rates for personal loans from institutional lenders provide a good guidepost for private loans as well.
5. Leasing
A lease is a kind of loan in which you borrow property (a car, for example) instead of borrowing money. At the end of the lease term, you must return the leased item to the lender. A lease generally has a fixed loan amount, a fixed loan term, and a fixed interest rate (the lease payment). Unlike most other loans, interest paid for leases is not tax deductible in Switzerland.
For private individuals, leasing is primarily used for automobiles. A disadvantage of leasing is that Swiss leasing companies generally require you to get full-casco car insurance and to service the vehicle regularly at approved garages, which can add to the cost. You are also generally required to make an initial down payment, and the leased car doesn’t belong to you. Refer to the moneyland.ch guide to car leasing for more information.
Annual interest rates for car leasing (April 2024): From around 1 percent to around 8 percent, depending on which car you want to lease, the lender, and your creditworthiness. The lowest interest rates are typically only offered as part of special promotions – often only for specific models from a certain dealer. The interest rate does not include additional costs for insurance or servicing.
6. Account overdraft loans
Some Swiss banks give you the option of applying for a line of credit for your private account based on your creditworthiness. If you are granted a line of credit, you can overdraw your account up to the limit of your credit line. You are charged interest based on your average negative account balance and the length of time that you carry the loan.
Account overdraft loans are subject to the Swiss Consumer Credit Act.
The interest you get varies based on your creditworthiness and the bank you use. You can find the standard rates that apply to overdrafts without a special agreed line of credit in the guide to overdraft interest rates.
7. Life insurance policy loans
If you have pillar 3b life insurance policy with cash value (mixed life insurance or savings insurance), then it is worth knowing about policy loans. A life insurance policy loan is a loan which is collateralized by the cash value of your pillar 3b life insurance. Important: Pillar 3a life insurance policies are not eligible for policy loans.
Typically, you can borrow an amount equal to as much as 80 percent of your policy’s current cash value. The interest rate is not fixed, and can change at any time. You can make payments towards paying off the loan at any time, but you generally are not required to make regular loan repayments. As long as you make the annual interest payments, you can generally carry the loan until your life insurance policy matures (typically at retirement age).
The advantage of policy loans is that the interest rates are generally lower than those of personal loans. Because of that, getting a policy loan is a cheaper alternative to getting a personal loan if you have a life insurance policy with significant cash value.
Annual interest rates for policy loans (April, 2024): Between around 2.5 percent and 3.5 percent, depending on the insurance company. Administrative fees may be charged separately.
Important: Life insurance with cash value is generally not an optimal way to save and to insure your dependents against the risk of your passing. Using term life insurance and then saving separately using a savings account, asset management service, or retirement fund (for pillar 3a assets and vested benefits) is much more favorable.
8. Lombard loans
A Lombard loan is a loan that is collateralized by securities like stocks, bonds, and funds held in a stock brokerage account. Some banks also let you pledge precious metals and life insurance policies with cash value.
There are two kinds of Lombard loans:
A line of credit: The bank gives you an account with a line of credit based on the value of your securities. The line of credit gets bigger if your securities gain value and smaller if they lose value. As long as you pay the interest, the loan can generally be carried indefinitely. The interest rate is not fixed, and can change over time.
A fixed loan: The loan has a fixed amount, a fixed loan term, and a fixed interest rate. This kind of Lombard loan is similar to a personal loan, as you must make regular repayments throughout the loan term to pay off the loan.
Typically, you can borrow an amount equal to between 70 and 80 percent of the value of your securities. However, the ratio can vary depending on which assets you hold.
Important: If your securities lose value, you may have to make additional payments to reduce the size of your loan in relation to the collateral value of your assets. Another disadvantage is that many banks have high minimum loan sizes for Lombard loans (30,000 francs or 50,000 francs, for example).
The advantage of Lombard loans is that the interest rates are generally much lower than those of personal loans. If you have a substantial securities portfolio, it is worth considering a lombard loan as an alternative to a personal loan.
Annual interest rates for Lombard loans (April, 2024): Between around 1.5 percent and 4.7 percent, depending on the bank. Administrative fees may be charged separately.
9. Pawn loans
Pawn loans are loans which are collateralized by valuables like costly jewelry, watches, diamonds and other gemstones, precious metal bullion, and some other items. The valuables you deposit as collateral remain with the lender until the loan has been repaid. Pawn loans must be repaid within a predefined loan term, though the term can be extended in some cases. If you fail to repay the loan by the end of the loan term, then the lender can seize the pledged valuables.
Typically, you can borrow an amount equal to around 40 percent of the estimated actual cash value of your deposited valuables, though ratios vary between lenders. No creditworthiness checks are required.
In addition to private pawn shops, there are also government-mandated pawn offices like the Zürcher Kantonalbank’s Pfandleihkasse in Zurich and the Caisse publique de prêts sur gages in Geneva.
Annual interest rates for pawn loans from public pawn offices (April, 2024): The Caisse publique de prêts sur gages has annual interest rates between 0 percent (loans up to 350 francs) and 7.5 percent (loans exceeding 700 francs), but charges an additional one-time service fee equal to 6 percent of the loan. The Zürcher Kantonalbank’s Pfandleihkasse charges 1 percent interest per month.
The interest rates and additional fees charged by private pawn shops vary broadly between lenders.
10. Reverse mortgages
Reverse mortgages are offered by a few Swiss banks. A reverse mortgage is a loan that is secured by real estate that you own, meaning you pledge equity in your property as collateral for the loan.
Reverse mortgage loan terms generally range between 5 and 15 years. The interest for the entire loan term is charged as a lump sum when you first get the loan. Depending on the lender, the loan can equal as much as 66 percent of your property’s market value.
A disadvantage of reverse mortgages is that they are typically only available to adults aged 60 or older. Another disadvantage is that the minimum loan size is often high (typically 100,000 francs). Lenders typically only accept properties with a market value of 1 million francs or more. Depending on the lender, you must either fully own the property, or hold most of the equity.
Interest rates for reverse mortgages are similar to those for fixed-rate mortgages. You can get an overview of fixed-rate mortgage interest rate spans using the interactive mortgage comparison on moneyland.ch.
Which kind of loan is right for me?
With the possible exception of loans from family and friends, all loans cost money. Saving up and paying for expenses in cash is generally always cheaper than getting a loan. Getting a private loan with little or no interest from family or friends is another alternative.
If you have a cash-value life insurance policy, then using a life insurance policy loan is generally cheaper than getting a personal loan. Note: Cash-value life insurance is generally not recommended.
If you have a high-value securities portfolio, then getting a Lombard loan collateralized by your securities is generally cheaper than getting a personal loan. However, Lombard loans involve some risk, because if your investment portfolio were to drastically lose value, then you will have to make additional payments to secure your loan.
If you are at least 60 years old, own real estate, and meet the requirements for a reverse mortgage, that can be a relatively affordable option for large loans.
In other cases, a personal loan or a peer to peer loan is the cheapest option.
Credit card loans, overdraft loans, and pawn loans are generally expensive, and are best avoided.
More on this topic:
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