Repaying Loans Ahead of Schedule in Switzerland

Loans are expensive. You can use the loan calculator to find out just how expensive loans are based on interest rates, loan terms and loan amounts

Example: A 20,000-franc cash loan with a loan term of 48 months and an interest rate of 9.5 percent requires a 498.75 franc monthly repayment and costs a total of 3940 francs in interest.

Settle loans as quickly as possible

Loan brokers and loan advisers often try to cajole borrowers into getting loans with very long loan terms. But getting a loan with a long term normally is not a good financial move. The longer you take to pay off a loan, the more the loan will cost you.

An honest broker or adviser will tell you to settle your debt as quickly as you possibly can. Swiss consumer credit laws give you the right to repay your debt in full at any time. Once you have repaid a loan, you cannot be expected to make any more payments.

Be wary of long loan terms

The following example shows how repaying loans early saves money: In the case of the 9.5 percent  interest loan of 20,000 francs used in the example above, at the end of 24 months you would have 10,905 francs of debt remaining.

If you were to pay off the loan after 24 months instead of the expected 48 months, you would pay 2875 francs in interest – instead of 3940 francs. So settling the remaining half of the debt half way into the loan term would save you 1065 francs (minus possible settlement fees).

Correct planning could save you even more money. If you had chosen a 24 month loan term from the beginning, you would have paid just 1953 francs in interest on the 20,000 franc loan by the end of the loan term.

Calculating remaining debt

It isn’t uncommon for lenders to incorrectly calculate your remaining debt. In order to help you check whether or not the numbers on your statement are correct, moneyland.ch provides an easy-to-use calculator which shows both your remaining debt and the savings potential of repaying your loan early.

Some lenders add a charge of 150 francs when you settle your debt ahead of schedule. If your lender charges such a fee, the amount of money you could save by repaying your debt early in full must be higher than the amount charged for early settlement fees.

Switching to another lender

If you do not have the money to pay off large chunks of your loan ahead of schedule, it may be worth it for you to refinance your loan with a cheaper loan. You can quickly find out whether switching to another loan will save you money using the loan refinancing calculator. You can find more practical advice in the guide to refinancing loans.

No interest when credit check is faulty

Occasionally, lenders make mistakes when measuring your creditworthiness. If a lender gives you a loan based on serious misjudgments of your creditworthiness, you may in some cases be able to have all interest charges on that loan waived. In that case you would only have to repay the loan itself without interest because a faulty credit check annuls the loan contract. In this case, you benefit from a “free” loan. If you suspect that a lender has incorrectly estimated your creditworthiness, you can contact your cantonal debt counseling office.

Repaying a loan early: what is the procedure?

If you are in a good financial position and can repay your loan early, just follow this procedure:

1. Tell the lending institute that you want to repay the loan early. You can do this at any time during your loan term. Depending on the lender, you may pay a fee for your loan settlement statement when you settle your debt early. 
2. Go over your loan settlement statement carefully. Compare the numbers listed on your statement with the results calculated by the moneyland.ch remaining debt and early loan settlement calculator. Inform the lender if the figures do not match up. 
3. If the figures on the statement are correct, you can go ahead and pay off your loan early.

More on this topic:
Remaining debt and early loan settlement calculator
Loan refinancing calculator: Will switching loans save you money?
Unbiased comparison of all Swiss personal loans
Refinancing loans in Switzerland