Personal Loans Now Cost More

The rising interest rates are not only pushing up the cost of Swiss mortgages, but also those of consumer loans. That was revealed when moneyland.ch analyzed the minimum and maximum interest rates of Swiss personal loans and inquired with Swiss lenders about loan costs.

The results: “Some Swiss lenders have already raised their interest rates, and we can expect to see more inflation in the future,” says moneyland.ch CEO Benjamin Manz.

The development first began in mid-2022. In the first two quarters of that year, interest rates hardly changed at all. But when the Swiss National Bank first began to incrementally raise its key interest rate, things started to change. Bob Finance and Good Finance confirmed to moneyland.ch that they have raised their average pricing for new personal loans over recent months. The rising refinancing costs for lenders is the reason for this.

Climbing minimum and maximum interest rates

Not all are willing to share information about the actual average cost of new consumer loans. But all lenders publish the highest and the lowest possible interest rates.

The minimum advertised interest rate is the best possible rate which borrowers who have excellent creditworthiness and also meet all other possible criteria (owning their own home, for example) could get at the time. The advertised maximum interest rate, on the other hand, is the highest rate which a borrower could be charged for a loan from that lender. moneyland.ch tracks these published minimum and maximum interest rates on an ongoing basis, and used this data to analyze the changes.

Four out of eleven Swiss personal loan providers have already raised their published interest rates. Table 1 shows the average values across all Swiss lenders which offer personal loans. There are lenders with minimum and/or maximum interest rates which are lower or higher than the average.

Table 1: Developments in published interest rates

Currently, the unweighted average of all published minimum interest rates for new personal loans is 5.17 percent. One year ago, the average was still 4.83 percent. The unweighted average of published maximum interest rates from all lenders is currently 8.66 percent. One year ago, it was a lower 8.49 percent.

In practice, the actual interest rates which most borrowers get lie somewhere in between the minimum and maximum rates published by lenders. Many lenders only decide on the final interest rate for a loan after the creditworthiness check, and rates vary based on the creditworthiness of individual borrowers. The length of the loan term and the size of the personal loan may also play a role in determining interest rates. Additionally, some lenders have special, lower interest rates for home owners. “Lenders do not publish the average of the real interest rates which their borrowers actually get, but it is likely close to their published maximum annual interest rates,” believes Manz. “The minimum interest rate is very rarely granted.”

Current interest rates compared

Table 2 shows the current minimum and maximum interest rates of Swiss personal loan providers (most Swiss banks do not offer their own personal loans). Three lenders have raised their minimum interest rates of the past year, and two service providers raised their maximum interest rates. The highest and lowest available minimum and maximum rates remain unchanged: The lowest minimum interest rate offered by a Swiss lender is still 3.5 percent, while the highest maximum rate is still 9.95 percent (Swiss law forbids interest rates higher than 10 percent).

Table 2: Current published interest rates from Swiss lenders

Changes to interest rate limits are likely

The Federal Department of Justice and Police (FDJP) decides on the legal limits for consumer loan interest rates at least once a year. The legal limits on interest rates for personal loans are determined by taking the SARON rate compounded over three months (SAR3MC) and adding 10 percentage points to it. For credit cards and store cards, a higher 12 percentage points are added. Because the base rate was negative over recent years, only the supplements applied, so the legal limits on interest rates were 10 percent for personal loans, and 12 percent for credit card loans.

Based on the current SARON rate, we can expect to see the limit raised to 11 percent for personal loans (13 percent for credit cards). If the SARON continues to go up, then the legal limits on interest rates may go up even more.

When asked by moneyland.ch, the FDJP was not yet able to say when the limit would be raised. But the FDJP did say that it is aware of both the ongoing changes in the markets, and those which are likely to come, and of the corresponding adjustments to interest rates. So, it is likely that the limit will be adjusted in the near future.  

“As soon as the federal government raises the limits on interest rates, numerous lenders will raise their published interest rates again,” says Manz. “Based on current Swiss financial policies, it can generally be assumed that loans will become even more expensive in the coming months.”

Requirements for getting loans may become stricter

Will higher interest rates make getting consumer loans more difficult? At least some of the lenders confirmed that higher interest rates can make getting a loan more difficult in the future. The reason for this is that the interest costs are accounted for when determining whether a prospective borrower can afford a loan.

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