Many Swiss retailers offer loyalty cards which let you make purchases on credit. Find out whether using store cards in Switzerland makes financial sense in this guide.
Retailers in Switzerland often draw customers with beautiful online displays and spectacular high-street window dressing. Futuristic TV sets to laptops, stylish coats, trendy shoes, elegant lounge sets – the list of goods on offer is nearly endless.
It is hardly surprising that many consumers find all that visual appeal hard to resist. If only money was not an obstacle. But no being able to afford something does not necessarily mean not buying it.
Clever merchants long ago discovered how to sell to customers who would not normally be able to buy: By offering installment purchases and store cards with lines of credit.
Store installment loans
Store loans are normally backed by big Swiss loan providers. Instead of getting a cash loan, you get the TV set, couch, or whatever it is you want.
The problem: These loans are often expensive. The Swiss consumer credit law allows effective annual interest rates of up to 10%.
Store cards from merchants
Store cards provide a convenient way to buy on credit. These loyalty cards are offered by larger retailers, such as MediaMarkt and Globus. A store credit card may entitle you to loyalty discounts or rewards, and can be used to pay on credit at the corresponding store and then pay off the purchase later in installments. Store cards are issued for retailers by specialized card issuers like Accarda, which create and brand cards to the merchants’ specifications.
The Coop Paycard, which lets you pay in installments at Coop group stores like Interdiscount and Fust, is another example.
The problem: The cost of installment and loan payments just drains your wallet even further. The majority of store cards a 12% effective annual interest rate for both installments and loans. That is the highest legal interest rate for credit cards. On top of that, you may be charged late-payment fees if you miss payments.
Credit Cards from merchants
An increasing number of Swiss retailers are now offering actual credit cards in place of store cards. These credit cards are issued by a credit card issuer but are decorated with the merchant’s branding and may include loyalty rewards, discounts, and other customer perks. Examples of retailers in Switzerland that offer loyalty credit cards include Coop, Conforama, Fnac, Jumbo, Lipo, Manor, Migros, and Ikea.
The main difference between these store credit cards and regular store cards is that the credit cards can be used to pay at many different merchants both in Switzerland and abroad. Store cards can only be used to pay at stores in one retail group.
As with store cards, using credit cards to spend and then pay off your debt over time does not make financial sense because interest rates are high. Most Swiss store credit cards have interest rates of 12% per annum or just slightly less than that.
Consumer loans are expensive
With Swiss store cards, credit cards and personal loans, the interest rates shown are effective interest rates. The problem is, interest rates are shown as percentages, which are difficult for many consumers to understand. The actual costs become much clearer when you calculate the whole figures based on those interest rates.
If you buy something which costs 10,000 Swiss francs using a loan with an 11.9% interest rate and pay it off over 12 months, just the loan will cost you an extra 622 francs. If you repaid the same loan over 24 months, the loan cost would be 1219 francs. In other words, you would spend 11,219 francs to get the item you want instead of the original 10,000 francs.
Store loans vs. personal loans
The numbers clearly show that using store cards and credit cards to shop on credit is not worth it from a financial point of view. These kinds of loans primarily benefit lenders. If you cannot get around making a purchase using a loan, then take time to compare different loan offers.
Many Swiss banks offer personal loans that are much cheaper than installment shopping or shopping on credit with store cards or credit cards. The cheapest Swiss online loans can, in a best-case scenario, have interest rates as low as 4.5%. Comparing loans is worth it.
The disadvantages: Personal loans are less convenient because you have to apply for each loan separately, the credit check can take some time, and there is a waiting period before you receive the money. Another factor to consider is that you will only get the lowest available interest rates if you have excellent creditworthiness. The poorer your credit is, the more difficult it is to get affordable loans.
Verdict: The cheapest option is not to use loans at all. Pay for purchases up front in cash or with a debit card. Using credit cards to pay at Swiss stores is also an option, as long as you pay your credit card bill in full and on time, so that you do not have to pay any interest.
More on this topic:
Compare Swiss credit cards now
Compare Swiss prepaid cards now
Compare Swiss personal loans now
A useful guide to Swiss personal loans
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