The term consumer loan is used to denote loans which are offered to private individuals for personal uses. Consumer loans can be used for many different purposes, including purchases like buying furniture, cars, or electronics.
Different kinds of consumer loans are offered in Switzerland. As per the Swiss consumer credit act (KKG), these can be divided into the following categories:
- Cash loans: Also called personal loans, this is a classic consumer loan to a private individual.
- Leasing: In this kind of loan, you borrow an item rather than money.
- Overdrafts: Sometimes called current account loans, an overdraft loan occurs when a bank account holder withdraws or transfers more money than is available in the account. However, overdrafts only count as consumer loans if they are offered as a service for which the bank charges interest. Overdrafts which can be repaid on an interest-free basis do not qualify as consumer loans.
- Financing for the purchase of goods and services: This kind of agreement primarily applies to installment purchases of consumer goods. For purchase financing to qualify as a consumer loan, the lender must charge interest on the outstanding loan.
The interest rates of Swiss consumer loans are limited to legal maximum rates. The limits are based on the going interest environment, and are subject to change. Currently, the limit is 10 percent per annum for cash loans and 12 percent per annum for credit card loans.
For a loan to qualify as a consumer loan under the Swiss consumer credit law, the loan amount has to be between 500 and 80,000 Swiss francs, and the loan term must be at least three months.
On the other hand, loans which match at least one of the following criteria are not classified as consumer loans:
- The loan will be used for professional or business purposes.
- The loan is not provided by a commercial lender (a bank, for example). Interest-free loans from private individuals do not qualify as consumer loans.
- The loan principal is lower than 500 francs or higher than 80,000 francs.
- The loan term is shorter than three months.
- The loan is secured by collateral. Mortgages, Lombard loans, and life insurance policy loans are not consumer loans because they are collateralized.
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