Loan glossary
All important terms related to personal loans in Switzerland explained simply.
Amortization
The scheduled repayment of a loan in regular installments. Each installment consists of an interest portion and an amortization portion. With each payment, the outstanding balance decreases.
Cash loan (Barkredit)
A consumer loan where the loan amount is paid out directly to the borrower's bank account. The most common loan type in Switzerland.
Debt collection (Betreibung)
A legally regulated procedure for debt recovery in Switzerland. A Betreibung is recorded in the debt collection register and can affect creditworthiness.
Debt collection register extract (Betreibungsregisterauszug)
An official document from the debt collection office listing all debt collection proceedings against a person. Lenders require this extract as part of the credit assessment.
Creditworthiness (Bonität)
A person's credit rating. It is assessed based on income, expenses, existing debts, and payment history. Good creditworthiness leads to better loan conditions.
Effective annual interest rate
The total cost rate of a loan per year in percent. It includes all mandatory costs (interest and fees) and enables a fair comparison of different loan offers. In Switzerland, it is capped at a maximum of 10%.
Mortgage lien (Grundpfandrecht)
A security right on real estate property. Consumer loans (cash loans) do not require a mortgage lien – this distinguishes them from mortgages.
Credit capacity (Kreditfähigkeit)
A person's financial ability to repay a loan. The assessment is required by law. The loan must hypothetically be repayable within 36 months.
Credit capacity assessment (Kreditfähigkeitsprüfung)
The mandatory assessment by the lender before granting a loan. It ensures that the borrower can repay the loan without falling into over-indebtedness.
Consumer loan (Konsumkredit)
A loan for private consumer purposes. Regulated in Switzerland by the Consumer Credit Act (KKG). Loan amounts from CHF 500 to CHF 80'000 with a minimum term of 3 months.
Consumer Credit Act (KKG)
The Swiss federal law governing the granting of consumer loans. It protects borrowers through provisions on credit capacity assessment, right of withdrawal, maximum interest rate, and lender disclosure obligations.
Loan term (Laufzeit)
The agreed duration of a loan contract, i.e., the period from disbursement to full repayment. For consumer loans in Switzerland, typically 12 to 84 months.
Leasing contract (Leasingvertrag)
A usage agreement in which the lessee may use an item (e.g., a car) in exchange for regular payments without becoming the owner. Like loans, leasing contracts are recorded in the ZEK.
Monthly installment (Monatsrate)
The monthly amount to be paid for loan repayment. It consists of an interest portion and a principal portion and remains constant throughout the entire term (annuity).
Nominal interest rate (Nominalzins)
The pure interest rate of a loan without taking into account fees and ancillary costs. It is generally lower than the effective annual interest rate.
Residual debt insurance (Restschuldversicherung)
An optional insurance that covers loan installments in the event of death, disability, or unemployment. It is not mandatory and is disclosed separately from the effective annual interest rate.
Joint liability (Solidarhaftung)
In a loan with two borrowers, both are jointly and severally liable. This means each borrower can be held responsible for the full loan amount.
Principal repayment (Tilgung)
The portion of the monthly loan installment used to repay the loan amount (as opposed to the interest portion). With each installment, the principal repayment portion increases.
Over-indebtedness (Überschuldung)
A condition in which a person's debts exceed their assets and repayment capacity. The KKG prohibits the granting of loans if it leads to over-indebtedness.
Debt consolidation (Umschuldung)
The replacement of an existing loan with a new loan offering better conditions. The goal is to save on interest or reduce the monthly burden.
Early repayment penalty (Vorfälligkeitsentschädigung)
A fee for early loan repayment. In Switzerland, no early repayment penalty is permitted for consumer loans (KKG).
Right of withdrawal (Widerrufsrecht)
The legal right to cancel a loan agreement within 14 days of signing the contract without giving any reasons. The cancellation must be made in writing.
ZEK
Zentralstelle für Kreditinformation (Central Office for Credit Information). The ZEK records active consumer loans and leasing contracts in Switzerland. A ZEK inquiry is made for every loan application.
ZEK entry (ZEK-Eintrag)
An entry in the database of the Zentralstelle für Kreditinformation regarding an active or completed loan or leasing contract. Negative entries can make it more difficult to obtain a loan.
Interest rate (Zinssatz)
The price for using borrowed money, expressed as a percentage per year. It depends on creditworthiness, the loan amount, and the term.