The lowering of the maximum interest rate for consumer loans on July 1, 2016 brought major changes to the Swiss lending landscape. Nine months later, average interest rates have adapted to the lower limits.
Crowdlending platforms like Lend and CreditGate24 have brought an interesting twist to the industry by connecting borrowers directly with private lenders. On the whole, the number of personal loans issued in Switzerland has declined somewhat, while the average loan size has increased.
Major differences in interest rates are still the norm
Although interest rates as a whole have declined, there are still major differences in interest rates charged. Effective interest rates vary between lenders and borrowers (based on creditworthiness). Lenders may get annual interest rates as low as 4.5% or as high as 9.95%. Rates used by credit card issuers are even higher, at up to 12% per annum. Those rates do not accurately reflect what lenders are currently paying because some loans issued before the change in consumer credit laws are still being serviced at rates above the current limit.
Average savings potential of 435 francs per loan
Using the differences in available interest rates as a reference point, moneyland.ch conducted a study to determine how much borrowers in Switzerland could save by using the loan with the lowest interest rates. The fact that many borrowers are not eligible for the lowest available interest rate due to poor creditworthiness is accounted for in the study.
Result: By moving to cheaper loans, borrowers in Switzerland could save around 140 million francs or an average of 435 francs per loan. Potential savings would be even higher if the study had accounted for other forms of financing – like installment payments and auto leasing – in addition to personal loans.
Refinancing remains unpopular
Although the potential savings are huge, switching from one lender to another is not a common practice in Switzerland. While lack of interest on the part of consumers is part of the problem, lack of information also plays a role. Alfred Sutter, a moneyland.ch analyst, believes that many borrowers are poorly informed and simply are not aware of how much they could be saving.
The loan refinancing calculator on moneyland.ch was created to help borrowers understand the savings potential of loan refinancing. According to Sutter, borrowers with good creditworthiness can often benefit from refinancing their loans, even taking the possible cost of the switch in to account.
The phenomenal savings potential of early settlement
While refinancing loans can result in substantial savings, those figures are dwarfed by the amount of money which borrower could save by repaying their personal loans ahead of schedule – even without refinancing. Estimations by moneyland.ch place the collective amount which could be saved if Swiss borrowers would repay their loans in first half of their loan terms at 185 million francs. If all loans were repaid within the first month of loan terms, savings would skyrocket to an estimated 650 million francs.
In practice, many borrowers underestimate the cost of loans. According to moneyland.ch CEO Benjamin Manz, a majority of borrowers do not understand that loan terms have a direct effect on loan costs.
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Guide to repaying loans ahead of schedule