People have been lending money to other people since long before the Internet made peer-to-peer lending a modern phenomenon. Lending money directly to friends, family and acquaintances is simple and cost-efficient because it does not require a broker (like a bank or P2P portal).
While many private loans are made on an interest-free basis, borrowers are often ready to offer relatively large amounts of interest in exchange for the convenience of bypassing conventional lenders. Interest rates charged by conventional Swiss lenders range from around 4.5% to 9.95%, as shown in the moneyland.ch personal loan comparison.
That makes paying 4% or even 5% interest a bargain for most borrowers, and a good investment for investors who want to earn more than the pitiful interest rates offered by most Swiss savings accounts.
Check the borrower’s creditworthiness
Unless the borrower is someone whom you know and trust 100%, you should take the time to look into their creditworthiness. Even if a person has a good job and a high standard of living, they may be living in debt and barely meeting the payments necessary to uphold their lifestyle.
A first step is to ask for the prospective borrower’s debt report at the local debt collection office in the town in which they live. You will have to provide well-founded evidence that you have a good reason to be interested in their creditworthiness. You can accomplish this by providing the drawn up (but not yet signed) contract.
If the borrower moved to their current place of residence fairly recently, a report from their current debt collection office may not suffice. In that case, get a report from their previous debt collection office as well. Alternatively, online service Betreibungsschalter Plus lets you easily purchase a basic credit report based on data from all Swiss debt registers.
Create a contract
Whether you lend money to an acquaintance at no interest just to help out or lend out money within your social circle for a profit, it is crucial that you create a written contract. Although verbal contracts are legally acceptable in Switzerland, they can be nearly impossible to prove during arbitration.
Short of filming or recording your verbal agreement, which can be legally problematic if the borrower doesn’t consent to being recorded, a written and signed agreement is the only way you can prove that a contract was made. There is no specific legal form for private loan contracts in Switzerland, but a written agreement should always include the following information:
1. The exact amount being borrowed.
2. The agreed-on interest rate. If special terms and conditions apply, such as different interest rates during different time frames, this information should be clearly laid out as well.
3. The exact loan term, written in a clear date format. If the loan is open ended, this should be clearly stated.
4. The full legal name of the lender. Ideally, you should also include your date and place of birth to avoid any possibility of doubt.
5. The full legal name of the borrower. Here too, by including additional personal information like the borrower’s date and place of birth, their current address, and any other information they consent to including, the less room you leave for legal doubt as to their involvement in the contract.
6. A clear and uncomplicated promise from the borrower to repay the loan and meet interest payments within the agreed-on time frame.
7. A clear description of any of the borrower’s property which serves as collateral against the loan (a description of a car, including the license, chassis and engine numbers, for example).
8. The signatures of both the lender and the borrower.
Options to pursue if borrowers do not keep their end of the bargain
If for any reason a borrower does not make their payments on time, there are a number of steps you can take in order to coax your money out of their pockets:
1. You can choose to discuss a new arrangement with them that more realistically suits their financial capabilities. This is usually a good step to take, because you want to get your money back with as few extra costs and hassles as possible. If the borrower is a friend or family member, you probably want to avoid legal action anyway. Try proposing a new arrangement which makes it easier for the person to repay the debt, such as an extended loan term. If they agree, prepare a new contract outlining the new conditions and have them sign it.
2. If you aren’t willing to bend or the borrower isn’t ready to cooperate, you can file an entry at the debt collection office of the municipality in which they live. The office will then send the borrower a demand for repayment, after which the borrower will have 10 days to contest the demand. If the borrower still refuses to pay the debt and is unable to provide evidence indicating that they do not owe you the money (a letter stating that you forgave their debt or a receipt showing full repayment, for example) you can move on to the arbitration phase.
As long as you can provide a written and signed contract, and the borrower cannot provide any counter-evidence, arbitration is a relatively quick and affordable process. It is also useful to provide receipts showing payments that have been made to date. Together with the contract, these will show exactly how much the borrower still owes you. If arbitrators are convinced that the borrower does in fact owe you money, they will pass the case on to the debt collection office for processing.
If the borrower-turned-debtor is employed, the debt collection office will collect repayments directly from their employer, who deducts the payments from their salary. The debt collection office also has the right to confiscate the borrower’s property to recover all or part of the debt. This ensures that you get at least part of your money back. However, if the borrower is unemployed and does not have any valuables, getting your money back will be nearly impossible.
In the event that evidence is sketchy and arbitrators cannot solve the case, you can pursue the case in a court of law. However, unless you have legal expenses insurance which covers the process, fighting it out in court can be an expensive procedure. Unless the debt is large and you know that the borrower is employed or has valuable property, pursuing the debt in court may not be worth your while.
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