The term “loan” is a central feature of today’s economic landscape. A loan is created when a person or entity (the “lender”) provides another person or entity (the “borrower”) with money for a predetermined amount of time.
In many cases, the lender charges the borrower money (known as “interest”) for this service. The lender not only repays the borrowed assets, but also makes additional interest payments. Typically, lenders must pay interest on an ongoing basis throughout the loan term (the amount of time it takes to repay the loan in full).
Other costs – such as administrative fees and insurance premiums – may apply in addition to interest charges. In Switzerland, the given interest rates of consumer loans must include all fees and charges.
The creditworthiness of the borrower normally plays a role in determining whether or not a lender will accept their loan application and how much interest they will pay. The rule of thumb is that the better the creditworthiness of the borrower, the better the chance that they will be approved for a loan and the lower the interest charges.
Lending money and profiting off the net interest rate spread is the core business of the majority of banks.
Mortgages (loans secured by property) are central to the Swiss banking industry. Business loans and personal loans are also important.