If handled well, personal loans can liberate you financially by enabling you to pay for things which you could not otherwise afford, and then repay the borrowed capital over time. However, many borrowers end up losing a lot of money and nerves by not dealing with loans in a smart way.
Here, moneyland.ch lists 7 common mistakes which borrowers should avoid.
1. Putting off repayment: Swiss consumer protection laws allow you to repay your debt as promptly as you choose to and lenders cannot force you to stick to a repayment schedule or penalize you for paying off your debt early. So it is in your best interest to repay the loan as quickly as possible because you are paying interest on the amount you actually owe over a given length of time. Don’t follow the lender’s repayment schedule if you can pay off the debt sooner – it will only cost you more money.
2. Borrowing too much: You may be tempted to borrow more money than you need to in order to avoid touching your savings, but never get a larger loan than you actually need. Remember, loans are expensive, and the more you borrow, the more you have to pay in interest. if you can cover part of the financial need out of your own pocket rather than with borrowed money, doing so will save you money in the long run.
3. Not comparing offers: The difference in interest charges between the cheapest online lenders and the most expensive loan sharks can be huge. While getting a loan from your bank may seem like the easiest way to go, comparing loan offers from all lenders to find the best deal (with the moneyland.ch loan comparison tool, for example) can help you avoid paying hundreds of francs for no added value.
4. Not refinancing: There is nothing worse for a borrower than hanging onto a bad deal. If you find a lender which is offering a much lower interest rate than what you are paying on your current loan, consider refinancing your expensive loan with the cheaper one. You can find out more in the moneyland.ch guide to refinancing.
5. Sticking to conventional loans: If you limit your search for loans to conventional bank branches then you may end up paying much more for your loan than necessary. Online loan providers now offer some of the lowest interest rates available in Switzerland, and it is important to include these in any comparison. Make sure to stick with well-known Swiss online lenders like those included in the moneyland.ch personal loans comparison.
6. Getting credit card loans: Applying for a personal loan can be an awkward experience and also requires patience. By contrast, using a credit card to get a cash advance or to buy something on credit is easy, instant, anonymous and often feels “cooler” than getting a loan. However, credit cards in Switzerland generally charge up to double the interest rates that you pay for a personal loan (find card rates in the credit card comparison). While they can be handy tools for getting small loans quickly, using a personal loan for larger amounts is a cheaper option.
7. Falling for swindlers: The internet is crawling with sleazy con artists which make loan sharks and shylocks look benevolent by comparison (at least the latter actually lend you money). Beware of too-good-to-believe offers and never transfer money to an online lender - serious lenders do not ask for deposits or interest prepayments ahead of providing loans. Even non-scam offers from official foreign lenders should be handled with care because those lenders may not comply with Swiss consumer protection laws.