Many people use the option of carrying a credit card balance to finance larger purchases. This guide explains how credit card loans work, and gives you an overview of the interest rates used by Swiss credit card issuers.
Carrying a balance on a credit card is a popular way to pay off big-ticket expenses over a period of several months. This guide answers the most important questions about carrying credit card balances in Switzerland, and compared the interest rates from different Swiss card issuers.
What does it mean to carry a credit card balance?
All Swiss credit card issuers offer credit card loans as a service. Many issuers let you apply for this service directly in your credit card application. Others let you apply for it separately.
If your credit card is enabled for carrying a balance, you can choose to pay just a part of the amount you owe at the end of the month. The remaining portion can be carried as a credit card loan.
When does credit card interest apply?
When you receive your monthly credit card bill, you have two options. You can choose to either pay the full amount you owe, or – if your credit card is enabled for carrying balances – you can pay just part of the bill. In every case, you always have to pay at least the minimum required payment, as shown in the table below.
If you pay your bill in full within the given grace period, you will not be charged any interest.
But if, on the other hand, you choose to pay just part of the bill and carry the rest as a negative balance, then your card issuer will charge you interest on that balance. The amount of interest you have to pay is determined by your credit card’s annual interest rate. You can find an overview of interest rates in the table below.
How high can credit card interest rates be?
The Swiss Consumer Credit Act limits the interest rates of credit cards for private individuals to a maximum annual interest rate set by the Federal Council. Depending on when you got your credit card, the interest rate may be higher or lower than the current maximum rate.
Personal loans are cheaper
The maximum interest rate for personal loans is lower than the maximum rate for credit card loans. If you have high credit card debts, you can save a lot of money by refinancing with a cheaper personal loan. The length of time over which you will repay the loan also plays a role.
Example: If you use a credit card with a 12-percent annual interest rate to make 20,000 francs of purchases and pay the loan of over 60 months, you will spend a total of around 6322 francs on interest charges.
If, instead, you used a personal loan with a 10-percent annual interest rate, you would spend around 5242 francs on interest charges. You would save 1080 francs compared to using a credit card loan.
Depending on your creditworthiness, you may get a personal loan with an interest rate that is much lower than the maximum interest rate. You can compare offers using the interactive personal loan comparison.
How are credit card interest rates calculated?
The interest rates used for Swiss personal credit cards are effective annual interest rates, as is also the case with Swiss personal loans. The effective annual interest rate accounts for the total cost of the loan.
For which period of time will I be charged interest?
Swiss credit card issuers generally calculate interest separately for each purchase. Interest is calculated from the posting date – which is typically the date on which the purchase was made.
If you do not pay your credit card bill in full by the due date, you are charged interest in arrears, dating back to the date on which you made the purchase.
How much money can I borrow?
The spending limit (line of credit) you get based on your debt capacity check when you apply for the card determines the maximum credit card loan you can get.
Your credit card loan can never be higher than your spending limit minus the minimum requirement payment, as shown in the table.
Example: If your card’s spending limit is 15,000 francs and the minimum required monthly payment is 5 percent of the total balance, you can carry up to 14,250 francs over to the next month as a credit card loan (15,000-franc spending limit minus the 750-franc minimum payment = 14,250 francs).
You can find the maximum possible spending limit on the information pages of credit cards in the interactive Swiss credit card comparison. Be aware though, that the actual spending limit you get is based on your personal creditworthiness, and may be lower than the highest possible line of credit.
Are there any other costs in addition to interest charges?
If you fail to make at least the minimum required payment on time, you may be charged late payment fees and penalty interest. These penalties vary between card issuers. Penalty interest rates are typically identical to the standard interest rates shown in the table above.
You can find an overview of the late payment fees charged by Swiss card issuers in the guide to credit card late payment fees and penalty interest.
Installment payments as an alternative
Some Swiss credit card issuers also offer installment payments. When the price of a purchase exceeds a certain threshold, you are given the option of paying off that purchase in installments. The monthly installment payments are charged directly to your credit card.
The advantage of using these installment payments – when available – is that the interest rates are somewhat lower than the credit card interest rates.
More on this topic:
Find the right Swiss credit card now
Complimentary insurance benefits for credit card holders explained
How to avoid unnecessary costs when using credit cards to pay online
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