When it comes to consumer loan, most people focus primarly on the interest rate. What rate to expect in Switzerland? Do agencies that promise low rates hold those promises? And finally, how to explain the differences between the different rates? Discover our explanations.
Intuitively, we could say that the interest rate reflects the “cost of the loan”. When doing a credit, you’ll have to repay the borrowed amount plus the interest. But let’s go further. What does this rate cover? The answer to that question comes in three parts:
some contracts consistently deliver a loan insurance (in case of death, illness, accident) to cover the credit repayment in case of problem, while other companies may not provide these services. When you inquire about the interest rate, you should take this element also in consideration.
While most agencies praise a low interest rate, it is unfortunately, often the minimum and not the actual rate. That means that the promised rate will generally only be available to persons with an excellent financial position. Indeed, the rate covering the credit risk, a better situation will lower the cost. Each bank calculates the rate in different ways, but in general, this will depend on:
In finality, we find that the interest rate is not the major factor when calculating the cost of a loan. The repayment duration is the main element. So if you want a loan for 36 months, for example, it is much more interesting to receive an offer with an “average” rate than choosing another offer with a lower rate, but where the lender requires a 48 months contract claiming a lower monthly repayment. Let’s check that for a 5,000 Chf credit:
It is also worth inquiring about any additional services included or not in the credit offer. Faced with these issues, it is best to contact a trusted agency and perhaps focus more on credit conditions and services than on the interest rate only.
Article translated by Creditloan: Loan in Switzerland – www.creditloan.ch