Have you ever found yourself reviewing at the balance on your credit card statement and wondering how in the world it could be that high. Carrying balances on credit cards may not be as popular in Switzerland as it is in some other countries, but that doesn’t prevent around 8% of Swiss households from carrying credit card debt.
The Swiss consumer credit law limits the effective annual interest rate for credit cards to a maximum of 12% (limit as per 2017), which is low compared to the maximum rates applied to credit card balances in other countries. But because credit cards are primarily seen as an alternative payment method rather than a credit tool, information related to the way in which credit card issuers apply interest is buried in the fine print of their terms and conditions.
This moneyland.ch article provides useful insight into the credit terms and conditions applicable to Swiss credit cards.
1. Interest rates
The interest rate charges is the primary factor in determining the cost of carrying balances. Rates advertised by Swiss credit card issuers are effective annual interest rates which show you exactly how much you will pay for outstanding balances if you held them over the course of a year. As a general rule, no interest is charged on unpaid interest charges (no compounding). You can compare the interest rates of Swiss credit cards using the moneyland.ch credit card comparison.
2. Posting date vs. billing date
Every time you make a purchase on credit, the card issuer provides you with a loan to pay the merchant for the purchase. Theoretically, issuers have a right to charge you interest right from the time they lend you the money to settle your purchase. However, all Swiss credit card issuers waive interest charges altogether if you pay your credit card bill in full by the due date.
But differences in the way interest is charge become noticeable when you do not make your payment in full by the due date. When you choose to carry a balance (referred to as the “installment option” in Switzerland), the interest waiver is not applied and interest is charged.
Posting date. Many Swiss issuers charge interest on balances from the time that each transaction is posted. If you choose to pay just part of your credit card bill at the end of a given month, you will pay interest on all the transactions which you already made throughout that month. That means if you carry a balance, you pay interest on purchases which you made over the previous month even if you make your minimum payments on time. That makes this the more expensive billing method for cardholders.
Example: At the beginning of the month, you make travel purchases worth 3000 Swiss francs. At the end of the month, you pay just 1000 francs back, and carry 2000 francs of debt over to the next month. You are charged interest on the full 3000 franc balance retroactively from the days on which you made each purchase until the end of the month. During the next month you only pay interest on the remaining 2000 owed.
Credit card issuers which charge interest from the posting date include UBS, Topcard, Bonus Card (Libertycard), Cornèrcard (including Diners Club), and Cembra Money Bank (Migros Cumulus Mastercard).
Billing date. Some issuers only begin to charge you interest from the date on which your card statement and bill were sent. This means that if you choose to carry a balance, you only pay interest on that balance from the time your statement was published (normally the end of the month).
Example: At the beginning of the month, you make travel purchases worth 3000 Swiss francs. At the end of the month, you pay just 1000 francs back by the due date, and carry 2000 francs of debt over to the next month. You are charged interest on the 2000 francs, starting from the time you received the bill at the end of the month.
You pay less interest on balances charged from your billing date because you do not pay interest retroactively from the dates on which you made each purchase. You are only charged interest starting from the time you are billed – normally at the end of the month.
Issuers which charge you interest from the billing date include Viseca (cantonal banks, Raiffeisen), Swisscard (Credit Suisse, American Express, Coop Supercard Plus), and Postfinance.
3. Minimum payments
If you choose to carry a balance, Swiss card issuers will expect you to make at least a minimum payment. As long as you make the minimum payment every month, you can carry credit card debt for an indefinite amount of time, though doing this isn’t recommended because interest rates are relatively high.
The minimum payment charged by Swiss credit card issuers is generally equal to 5% of your total balance. Cembra Money Bank, UBS, Swisscard and Topcard require a minimum monthly payment of 5% or 50 francs, whichever is greater. Bonus card requires a minimum payment of 50 francs. Cornèrcard, Viseca, and Postfinance require a minimum monthly payment of 5% of your balance or 100 francs, whichever is greater.
As a general rule, issuers apply your payments to outstanding interest charges first. Only what is left after covering interest will go towards paying off your balance. Your balance detracts from your line of credit, so the higher your outstanding balance, the lower your credit limit will be.
4. Grace periods
In Switzerland, some issuers provide a grace period (typically 20 days) to pay your credit card bill, starting from the time that your monthly statement is published. If you fail to make your payment on time, the issuer will apply penalty interest to your balance. Grace periods vary between Swiss issuers. Repaying your credit as soon as your receive your card statement (or earlier) is recommended.
5. Penalty fees
If you fail to pay your credit card bill on time, you will normally be sent a warning from your card issuer. A penalty fee (typically 30 francs) will be added to your bill and you will still be charged the minimum payment. Late payments are recorded in your ZEK credit history. In most cases, failure to make payments after receiving a warning will result in your card account being frozen and a debt collection case being opened against you.
The Swiss consumer credit law limits the interest which card issuers can charge, which means they cannot slap you with the horrendous penalty rates applied to delinquent cardholders in some other countries. Typically, the standard effective annual interest rate which you pay for regular balances also applies to delinquent balances. However, when you do not make at least the minimum payment by the due date, card issuers typically charge you interest on the full balance from either the transaction date or the last billing date.
This applies even when you make your payment in full, but the issuer receives the payment after the due date. This penalty interest is applied regardless of whether the issuer normally charges interest from the posting date or the billing date.
Example: You make 3000 francs worth of purchases using your credit card. You repay the full 3000 francs, but your payment arrives a day or more after the due date. You pay penalty interest on the 3000 francs, from the time each transaction was made.
For this reason, it is very important that you make your payment on time. Making the payment on the due date (the last day of the month, for example) is best avoided because the payment may only be received by the issuer one or more working days after you make the payment. The date on which the issuer receives you payment determines whether or not you pay penalty interest – not the date on which you make the payment.
From the time you pay off part of your balance (at least the minimum payment), you will no longer be charged interest on the repaid amount going forward, but you still pay interest on the remaining debt until it is repaid in full.
6. Other useful information
In keeping with the Swiss consumer credit law, you cannot carry a balance for purchases made during your first 14 days as a card holder. During that period, you are free to cancel your credit card contract if you so choose.
You are free to repay your credit card debt at any time, you do not need to wait until you receive the bill. You are under no obligations to stick to an installment repayment schedule. You can also normally make payments in excess of the credit you have used, in which case the positive balance is credited to your account and you may earn interest on this positive balance.
Swiss credit card loans generally have higher interest rates than Swiss personal loans. While the option of carrying a balance can provide a flexible tool for bridging short-term gaps in financial liquidity, in most cases carrying a balance should be avoided at all costs.
If for some reason you expect to carry a balance on your credit card, consider using a card with a low interest rate which charges interest from the billing date rather than the posting date. Most importantly, always make at least your minimum payments by the due date every month. Setting up a recurring transaction for the minimum payment (CHF 50 or CHF 100, for example) from your private account to your credit card issuer can help you avoid missing payments.
If you need a large amount of financing or a long loan term, consider applying for a personal loan instead of using your credit card. You can compare the costs of Swiss personal loans using the unbiased personal loan comparison on moneyland.ch.
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