swiss loan refinance terminate

Refinancing: How to Replace a Loan

This moneyland.ch guide explains what you should look out for when terminating a loan in favor of a move to another lender.

Taking on new loans to cover your regular repayments for existing debts is never a good idea. Doing this will only add to your debt burden instead of lightening it.

But refinancing your existing loan with a more affordable online loan can pay off in some cases. When you refinance a loan, you completely replace your existing loan with a cheaper one

What does loan termination cost?

According to Swiss consumer credit laws, lenders cannot charge you a penalty for terminating a loan ahead of schedule. You can amortize a loan at any time, without having to pay penalties to cover the lender’s lost earnings on future interest payments.

Practically all Swiss lenders allow you to refinance loans. Some lenders like Migros Bank go as far as to require that you refinance any outstanding loans from other lenders when you get a loan from them.

When you apply for refinancing, prospective lenders normally require a loan settlement statement from your former lender. Some lenders make you pay a fee for this statement.

Cembra Money Bank charges a 150-franc fee for a loan statement statement. Bank-now has a more complicated fee structure, charging a fee based on the size of your loan – but never higher than 200 francs. Cashgate provides final loan statements free of charge, so you do not get hit with added costs when you refinance a Cashgate loan.

Refinancing: is it worth it?

Whether or not refinancing pays off depends on how your current interest rates compare with those of the new loan. A higher annual interest rate means a more expensive loan, so before refinancing you need to find a loan which has a significantly lower interest rate than your current loan.

If the difference between interest you will pay on your current and refinanced loans is major, meaning the new loan would be notably cheaper, then refinancing is worth it. You can easily compare the cost of loans from all Swiss lenders using the moneyland.ch loan comparison.

moneyland.ch also provides a calculator which automatically calculates whether or not refinancing your loan – meaning a move to another lender – is worth it for you.

This example clarifies the concept: Suppose you have gotten a 30,000 Swiss franc loan with a loan term of 48 months and a 9.95% interest rate. After making your twelfth monthly repayment, you refinance the loan using another loan with an interest rate of 5.9%.

The remaining 36 monthly repayments which you pay to your new lender are lower than the repayments you would have made if you had stuck with your original loan. Thanks to refinancing you save around 1500 francs of interest charges in total by the end of the loan term. You do need to account for the possible cost of a loan settlement statement from your former lender. If you had to pay 100 francs for a loan settlement statement when refinancing, your total saving thanks to refinancing would come to 1400 francs.

Refinancing is not always an option

It may be easy enough to find a loan which costs less than your current loan, but refinancing to affordable loans is not always possible.

The reason: Lenders and low-cost loan providers in particular often set a high bar for granting loan applications. Unless you have very good credit, you may not qualify for the best offers.

That is why it is important that you get a guarantee of refinancing from your new lender before terminating your existing loan. This will help you avoid being stranded if the new lender ends up rejecting you should you fail to meet their criteria.

Refinancing with an existing loan?

In many cases you are also able to get a higher loan than the one you refinance. But you should understand that the cost of the loan goes up when you borrow more.

Also take care when extending your loan term. The longer you take to pay off the loan, the more expensive the loan will be.

Replacing a loan: The right way to do it

  1. Compare the interest rate of your existing loan with those of other loan offers using the interactive loan comparison. If you find a loan with lower interest rate, you can calculate the savings potential of refinancing with that loan using the moneyland.ch loan refinancing calculator.
     
  2. Find out what your current lender charges for a loan settlement statement. As long as this fee is lower than the potential savings benefit of refinancing your loan, then moving to the cheaper loan is normally beneficial. Always ask your current lender to provide you with a final statement which includes all fees and charges.
     
  3. Apply for loan refinancing from the lender of your choice. You will usually need to include the final loan statement from your current lender in the application.
     
  4. Cancel your current loan. Important: Only terminate your existing loan after your refinancing application has been approved by your new lender. Until you have a clear approval, there is no guarantee that the new lender will refinance your current loan.
  1. Depending on the lender which refinances your loan, you may have to handle the settlement of your debt at your former lender yourself. There are some lenders which handle the settlement of your old loan for you.

More on this topic:
Swiss loan comparison
Loan refinancing calculator
Loan calculator: What does a loan cost?
Online loans in Switzerland
What do you actually pay for a loan?
Personal loan tips
Getting a loan: criteria

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The moneyland.ch magazine provides accurate, unbiased information on topics related to finance and money. In addition to research and expert interviews, the magazine contains numerous financial guides.