The increase in the maximum interest rate for private loans in Switzerland is now effective. Indeed, according to the press release from the Swiss federal administration, the maximum rate will therefore be set at 11% from 1er May 2023. This decision comes in a context of general rise in interest rates. Its objective is to protect consumers against the risks associated with indebtedness. In this article, we analyze the reasons behind this increase in the maximum interest rate for private loans and its consequences for consumers and market players.
- The 2 reasons for the rise in the interest rate
- What does the law ordinance say?
- Consequences for consumers
- The consequences for market players
- A global trend?
- Our advice for coping with the rise
- Our conclusion on the interest rate hike
The 2 reasons for the increase in the maximum interest rate for private loans
The increase in the maximum interest rate for consumer loans in Switzerland, scheduled for May 1, 2023, is explained by 2 well-known economic factors. Here are the two elements that justify the origin of this decision:
1. Counter the effects of inflation:
Inflation is a determining factor for interest rates. If inflation rises, central banks tend to raise interest rates to counter the negative effect on the economy. In the case of Switzerland, a unexpected acceleration of inflation suggests that the Swiss National Bank (SNB) should therefore continue to raise key rates in the coming months.
2. Stabilize the financial situation of private households:
The Swiss authorities are increasing the maximum interest rate for consumer loans to reduce the risk of household over-indebtedness. By raising interest rates, it becomes more expensive for consumers to borrow, which may encourage them to reduce their debt and improve their financial situation.
What does the Federal Consumer Credit Act Ordinance say?
Ordinance on the Federal Consumer Credit Act (OLCC) is a legal instrument. It provides additional provisions and clarifications on the implementation of the Federal Consumer Credit Act (LCC). With regard to the maximum interest rate, the OLCC does not directly set the rate, but it establishes the criteria and the procedure for determining this rate.
According to Article 14, paragraph 2, of the LCC, the Federal Department of Finance (DFF), in consultation with the Swiss National Bank (SNB), is responsible for setting the maximum interest rate for consumer credit. The OLCC specifies the terms of this consultation and the criteria to be taken into account to determine the maximum interest rate. Technically, the maximum interest rate for private loans is obtained by adding the following two elements:
- The three-month compound Saron rate (SAR3MC)
- An additional 10 percentage points
The maximum rate is then rounded to the nearest whole number in accordance with business rules.
With real figures what does it give...
In the current context, the Saron rate being 1.41% (as of April 5, 2023), it suffices to add to this figure the 10 percentage points (10%) and then round the value to obtain the maximum rate. Which therefore gives us: 1.41% + 10% = 11.41%., rounded to the nearest whole number = 11%.
The Saron rate (SAR3MC) added to 10% and then rounded to the nearest whole number, gives the maximum interest rate for private loans in Switzerland.Source: Federal Consumer Credit Act Ordinance (OLCC)
According to the upward trend of the Saron, it can therefore reasonably be expected that the maximum interest rate for private loans in Switzerland will increase further in the coming months.
Consequences for consumers
The increase in the maximum interest rate for private loans in Switzerland should have several consequences for consumers. First, borrowers could be more attentive to their indebtedness and their ability to repay. This could encourage them to borrow more responsibly and therefore avoid situations of over-indebtedness. Second, consumers might seek financing solutions as attractive as possible.
When the maximum interest rate for private loans increases, history shows us the following phenomenon in terms of consumption:
- Customers are much more careful about the conditions of their private loans
- They think twice before borrowing a large sum
This change in behavior therefore perfectly meets the objective sought by the Swiss authorities. Indeed, private households are reducing their indebtedness and thus improve their financial situation. This phenomenon is also confirmed at the level of mortgage financing, which follows the same mechanism when interest rates rise.
The consequences for market players
Credit market participants in Switzerland, such as banks and credit institutions, could also feel the effects of the increase in the maximum interest rate for private loans. Some experts anticipate a drop in requests for Consumer credit due to rising borrowing costs. Credit institutions may have to adapt their offer. They will certainly have to offer more innovative financing solutions and competitive to meet consumer needs.
The increase in the maximum interest rate for private loans: a global trend?
The increase in the maximum interest rate for private loans in Switzerland is part of a global trend observed in several countries. This development reflects the concerns of global authorities about the risks of excessive indebtedness and the abusive practices of certain lenders. Regulators seek to protect consumers. They promote sustainable economic growth, by overseeing credit terms and encouraging responsible debt management.
Tips for coping with the increase in the maximum interest rate for private loans
To cope with this increase in the maximum interest rate for private loans in Switzerland, here are some tips for consumers:
Compare private credit offers
Before subscribe to a private loan, take the time to seek the services of a broker. This will allow you to find the best solution adapted to your financial situation and your needs. A private credit intermediary will know exactly which establishment to send your request to. So you will maximize your chances of obtaining private credit without committing the classic mistakes that can lead to a refusal.
Properly assess your repayment capacity
Before borrowing, make sure you know your repayment capacity and the costs associated with credit. feel free to seek advice from a professional to assess your financial situation. At Lica we also systematically establish a coherent budget for each of our customers before offering them consumer credit.
Prioritize new innovative solutions
With higher borrowing costs, you should consider other financing options. OUR exclusive cashback solution is a very interesting way to reduce the burden of your private credit. By making your private credit application 100% online, you benefit from a cashback of up to CHF 5,000.-. The principle is simple: Lica shares its commission when a customer makes his credit request alone and thus requires much less workload. A more equitable and financially more attractive solution for your private credit!
Our conclusion on the increase in the maximum interest rate for private loans
The increase in the maximum interest rate for private loans in Switzerland aims to protect consumers. It therefore encourages responsible credit management. The consequences of this decision for consumers and market players remain to be observed. This measure is likely to encourage borrowers to adopt more prudent and responsible credit behaviors.
In conclusion, it is therefore essential that borrowers become aware of this new reality by seeking more professional services before concluding their private credit.
Do you have questions before applying for private credit? Our advisors are there to answer your questions 7 days a week directly on WhatsApp. Ask us for more information and we will be happy to answer you!