If you are thinking about taking out a loan to finance your personal goals or to fill any financial gaps in your budget, you should give careful consideration to who your finance partner will be. Sadly, there are a lot of dubious credit offerings to be found on social media these days that are designed to lure in unsuspecting consumers. If a lender is promising you immediate funds without a credit check or with suspiciously low interest rates, you should be particularly cautious. How can you tell a reputable financial services company from a fraudulent lender?
Beware of the trap – this is what rogue lenders do
Fraudulent lenders will often demand advance payments even before the loan has been paid out. The justification given for these advance payments is usually vague. In many cases, it is claimed that this sort of fee will speed up the paperwork so that the loan is paid out sooner. You should be on the alert if your credit transaction includes payments for any kind of "express processing." All too often, unsuspecting consumers make the payments and then wait in vain for their loan to be issued. You should therefore always ensure that payments and any other remuneration to credit brokers are contractually regulated, and remember not to make advance payments on the basis of confusing bills. If you have any concerns about a payment you are being asked to make, for your security you should insist that the lender pays out your loan first.
Solvency checks exist for your protection
The Swiss Consumer Credit Act stipulates that the credit intermediary must carry out a solvency check on the consumer. Since 2003, lenders have even been obligated to review the financial budget of each individual consumer to make sure that extending credit will not cause the consumer to become overindebted. When calculating the budget, existing loans, rent payments, mortgages, and other regular costs are taken into account. This calculation is based on the items of expenditure detailed in the circular on the calculation of the statutory subsistence level that is applicable in the canton in which the consumer lives. A consumer is deemed solvent if the repayment of the consumer loan is generally possible within 36 months based on the consumer's budget (this also applies if a longer loan term is defined, although in this case only the interest for the period of 36 months must be taken into account and not for a loan term any longer than that). The purpose of the solvency check is to ensure that the consumer will not become overindebted as a result of taking out the loan, although it is merely a snapshot of the financial circumstances at the time when the loan is approved. Subsequent changes in life circumstances cannot be taken into account in the context of the solvency check.
Special considerations for lease agreements
The guidelines for the solvency check are slightly different for lease agreements. A lease can also be taken out if the consumer has sufficient assets to make the lease payments that are due. However, even lease agreements require checks on the consumer's solvency. In contrast to a consumer loan, however, with leasing there is no assumption that the loan (plus the interest accrued over 36 months) will be repaid by the consumer within 36 months.
What you can expect from reputable lenders
As you can see, financial services companies in Switzerland are subject to statutory obligations to protect their clients from overindebtedness. The following reminders should help you to choose a trustworthy financial partner in Switzerland:
- Reputable lenders do not market their services on social media or WhatsApp.
- Monetary transactions are not handled via Western Union or MoneyGram, or using vouchers.
- Fraudulent lenders usually offer suspiciously low interest rates and demand substantial advance payments or payments for no clear reason.
- Reputable lenders, by contrast, carry out a solvency check in accordance with the Swiss Consumer Credit Act as they are obligated to check the creditworthiness of their clients in order to protect private individuals from insolvency or overindebtedness.
What a proper consumer credit agreement should include
Swiss credit companies will always conclude a proper consumer credit agreement with you. The contract should cover the following in particular:
- The net amount of the loan
- The effective annual interest rate (no more than 11%)
- If applicable, other costs that are not included in the effective annual interest rate.
- The conditions that determine when the interest rate or other regular costs can be changed.
- The costs incurred as a result of nonperformance of contractual obligations.
- The maximum credit amount (if applicable).
- The repayment terms (i.e. amount, number, and frequency of repayments).
- Details of any claim to an interest waiver in the event of accelerated repayment.
- The required collateral.
- The attachable portion of income (determined during the solvency check)
Fraudsters try to take advantage of consumers' financial distress or shortages while circumventing legal guidelines. Insist that your financial security is a priority with the financial partner of your choice. With our credit product CREDIT-now, 150,000 customers in Switzerland already benefit from integrated collateral free of charge. This package includes credit protection in the event of death as well as two instalment deferrals without additional interest charges. Furthermore, we offer an extended repayment option for our customers. According to the Swiss Consumer Credit Act, consumers are granted a 14-day right of withdrawal when taking out a loan. In our credit product, this period is extended by another ten days, during which you can repay your credit without additional costs or fees.