Consumer Loan: Your Swiss Financing

What is a consumer loan?

A consumer loan is a loan for private purposes that falls under the Federal Law on Consumer Credit (FLCC). In addition to consumer loans, the FLCC also regulates leasing, credit/loyalty cards and overdrafts, provided that:

• The loan amount is between CHF 500 and CHF 80'000,
• the term exceeds 3 months,
• no collateral is provided (unlike, for example, a mortgage),
• the loan is granted to a private individual,
• and the loan is used for private purposes.

In everyday language, consumer loan, small loan and personal loan are often used interchangeably. The prerequisites for obtaining a loan and the lenders are the same.

The majority of loans granted in Switzerland fall under the Consumer Credit Act. Statistics on loans granted, their type and amount are published, among others, by the ZEK (Central Office for Credit Information).

What rules apply to a consumer loan?

The Federal Law on Consumer Credit is designed to protect borrowers from over-indebtedness. To achieve this goal, the FLCC sets out several rules:

• Affordability check: A loan may only be granted if you, as the borrower, would be able to repay the entire amount within 36 months from your freely disposable income.
• Reporting obligation to IKO: The recording of current loans in the IKO is based directly on the requirements of the Consumer Credit Act. The obligations stored in the IKO must be taken into account in the affordability check.
• Contract: Loan agreements must be concluded in writing and contain certain elements. The most important are the net amount, the monthly instalment, the effective annual interest rate (APR), and information on the budget calculation used in the affordability check.
• Maximum interest rate: The maximum permissible interest rate for consumer loans is set out in the Ordinance to the Federal Law on Consumer Credit (FLCC) and reviewed regularly. Since 2021, the compounded 3-month SARON swap has been used as the reference rate; previously, it was LIBOR.
• Early repayment: You may repay more than the agreed monthly instalment at any time. The lender may not charge any costs for the lost interest income. In practice, small administration fees are common. Once the loan is fully repaid, the contract ends.
• Right of withdrawal: The FLCC prescribes a 14-day right of withdrawal during which both parties can cancel the contract. Therefore, consumer loans are only paid out two weeks after the valid conclusion of the agreement.

What is the effective annual interest rate (APR)?

The effective annual interest rate (APR) expresses the cost of the loan as a yearly percentage. It must be explicitly stated in the consumer loan agreement and include all costs directly associated with the loan. Exceptions are costs for reminders and similar fees, in particular if they arise due to additional or changed requirements of the borrower. For example, if the borrower requests additional information during the year.

According to the Federal Law on Consumer Credit (FLCC), no costs for lost interest income may be charged for the early repayment of a loan. Interest costs that do not accrue must be waived for the borrower. For early settlement (full repayment), only administration fees may be charged.

Platform fees charged by crowdlenders are included in the effective annual interest rate (APR).

What are ZEK and IKO?

The Consumer Credit Information Centre (IKO) maintains a database with information on loans, credit cards and leases of private individuals. Its legal basis is the Federal Law on Consumer Credit. (in German; unofficial English translation of the KKG)

The IKO’s role is to help prevent borrowers from over-indebtedness. Lenders are therefore obliged to query the IKO when granting consumer loans and leasing, and to report data to the IKO.

The Central Office for Credit Information (ZEK) is also an association whose system stores information on loans, leasing and credit/loyalty cards. The ZEK was established before the IKO and serves the broader information needs of lenders.

The main difference between IKO and ZEK is:

• The IKO only contains data on ongoing obligations that fall under the Swiss Consumer Credit Act.
• The ZEK also contains data on loans outside the FLCC definition, including other banking products such as mortgages, rejections of applications, and other credit-relevant information.

How does the process work?

Check your options with a non-binding enquiry

• You send us your non-binding enquiry.
• We review your initial situation and complete your profile, including the necessary documents.
• To estimate your approximate loan capacity, we assess your income and expenditure. This budget calculation complies with the Federal Law on Consumer Credit (FLCC).
• We determine which bank or banks might offer you a loan and at what interest rate.
• We present this initial assessment of your options to you clearly and transparently.

Submit an application to the bank or lender

• After discussing with you and receiving your approval, we submit your application to a suitable lender.
• The lender performs a credit check, including reviews by ZEK and IKO.
• Once we receive feedback on your application, we’ll go over it with you.
• If you’re happy with the offer, we’ll arrange the contract for you. After you sign and return it, the 14-day cooling-off period (right of withdrawal) for consumer loans begins.
• Loans not covered by the FLCC are disbursed without a waiting period.

Disbursement and repayment

• The loan amount is paid into your bank account.
• You arrange payment of your agreed monthly instalments via direct debit or individual monthly payments.
• Making payments on time is crucial to build a positive loan repayment history.
• Repay more when your budget allows—this reduces the loan term and lowers interest costs.

Loan illustration

Loan amount of CHF 25'000. Effective annual interest rate of 1) 4.9% to 2) 10.95%. Over 36 months, this generates interest or costs of 1) CHF 1'890.36 to 2) CHF 4'225.07 and a monthly instalment of 1) CHF 746.95 to 2) CHF 811.81.

Swiss Lenders offer terms from 6 to 120 months.