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Loan interest rate: who decides and how to get a better rate?

Blog | Credit

For a personal loan, who determines the rate applied? How to estimate the interest rate of you future credit, or to benefit from the best rate of the market? Our explanation.

Maximum rate allowed

Institutions are not free to set any interest rate, and have to conform to the Swiss Consumer Credit Law. Thus, it is the Swiss confederation who decides the maximum interest rate allowed for a consumer loan. Until 2016, this rate was 15%. In July 2016, this rate decreased from 15% to 10%.

Factors contributing to the rates

Institution proposing consumer loans are free to set any rate up to the maximum allowed rate. More specifically, the rate set by a bank is dependent on various factors, notably:

  • Client solvency: which depends of the budget, and the repayment ability.
  • Client reliability: it results from the customer’s credit history (bad ZEK entries, bank history, …), but from personal situation as well.
  • Loan terms: the interest rate will also vary depending on the amount asked, and repayment duration.

Get a better rate

In order to obtain a better interest rate, it is importante to work on improving it’s solvency and its reliability. More specifically, attention should be given to:

  • Report its financial position accurately: notably, it is important not to forget to announce any ancillary income: bonus, 13th salary, …
  • Avoid making multiple loan requests: a loan request is generally recorded to the ZEK. Too many requests can result to a bad ZEK history.
  • Make its payments on time: payment delays can also be recorded to the ZEK. In case of liquidity shortage, it is better to inform the bank and find a solution, rather than delay the payment.

Negotiate its interest rate

It may be difficult for an individual adressing to a bank to negotiate the proposed rate. The bank will make an offer, and probably won’t change it. In order to get a lower rate, the best solution is to ask to a loan agency. Indeed, an agency has both the experience and relationships necessary to get a better offer.

For example, Multcredit – the loan specialist, is offering secured loan solutions.