What are the criteria that determine the interest rate of your loan?

the interest rate on your loan

Obtaining a personal loan from a bank or another credit organization is good. But taking advantage of a very advantageous interest rate is better! You will be amazed at how high the interest rates, for a credit of the same type and the same amount, may vary from one request to another. How can these differences be explained? How do banks determine interest rates for each customer? How to obtain attractive interest rates ? In this article, you will find answers to all these questions!

Contents

  1. Are there limits to the interest rates charged by banks?
  2. Your creditworthiness influences the interest rate of your credit
  3. Your credit history
  4. Reimbursement amount and duration
  5. Choose your financial institution wisely
  6. Lack of experience: the last surprising criterion!
  7. Lica the neutral and independent credit provider

Are there limits to the interest rates charged by banks?

Personal credit is a source of debt for households. In order to protect them from over-indebtedness, the consumer credit law (LCC) imposes limits on the interest rates applied by banks and by all credit institutions to individuals. This is the maximum rate which limits a ceiling to the interest that a bank can draw from a loan granted to an individual or to associations. Today, in Switzerland, the interest rate on your credit is set to a maximum of 12%.

Failure to comply with this maximum interest rate is considered abuse and may result in criminal sanctions. Note, however, that this rate only sets a ceiling. Each credit institution is therefore free to establish the interest rate it desires according to each credit request. She will only take care not to exceed the maximum interest rate imposed by law.

Your creditworthiness influences the interest rate of your credit

Solvency is the first criterion taken into account by banks and credit institutions to set the interest rate for your credit. It expresses your ability to repay a loan. Many factors are considered to determine your creditworthiness. The amount of your income, your expenses or even your debt ratio are part of this.

If you want to obtain attractive interest rates, it is therefore strongly recommended to have good creditworthiness. This starts with good management of your finances and regular and sufficient cash inflows. Conversely, if your creditworthiness is low, the bank will take more risks by granting you a loan. It will therefore compensate for these risks by applying a higher interest rate.

Your credit history matters too!

All information concerning loans and financing to individuals are listed in a database called ZEK. Banks refer to this database before granting credit to their customers, but also before defining interest rates. Your financial history count! Difficulty repaying your old loans and disputes with your old banks can encourage banks to charge high interest rates. On the other hand, if you have always repaid your loans correctly and have not recorded any delay in the payment of monthly payments, your chances of obtaining advantageous rates will be more numerous.

Amount and repayment duration are also factors that can influence the interest rate of your credit

The amount and repayment deadline are also among the criteria for determining interest rates. You can benefit from lower interest rates if you borrow large sums to be repaid within a short period of time. The longer the maturity period, the higher the interest rate will be. Banks believe that smaller, long-term loans are more risky. This is why they charge higher interest rates if the repayment period is long.

A loan in the short term is more attractive in terms of interest rates. However, we must not forget that the amount of monthly payments is higher for this type of credit. Your debt ratio may therefore increase during the repayment period. A credit Short term is therefore recommended if you have high repayment capacity. Otherwise, opt for a long-term loan which will allow you to benefit from lower monthly payments.

Choose your financial institution wisely

Not all banks charge the same interest rates! For example, for the same Personal loan, the rate could vary from 3% to 4% from one bank to another. This is explained by the fact that the rates applied are not the same depending on the determination of risk and the commercial strategy of the different banks on the market in Switzerland.

You can very well play on this difference in pricing to lower the interest rate on your credit. For that, request the services of Lica to obtain the most advantageous credit possible depending on your situation. Once financing is accepted, don't miss your repayment deadlines. In case of delay, they will be registered with the ZEK. They will then be consulted by the banks when you take out another loan in the future and you risk being refused your loan.

Lack of experience: the last surprising criterion!

And yes, some banks want to know the payment experience of a future customer. If it has never had private financing or Consumer credit its data will therefore be non-existent in the ZEK database and it is possible that a higher rate will be applied due to lack of information. Paradoxical, however in certain cases, it is better to already have financing to obtain good conditions and a low interest rate. Sign up for a credit card and paying your bills regularly can, for example, help you obtain better conditions on your future loans.

Lica the neutral and independent credit provider

We are a neutral and independent service provider at your service to guide you on the best solution ! We consult your data and then make sure to find you the best possible solution for your financing. If you are looking for a personal loan in Switzerland you must therefore absolutely consider Lica as the solution to navigate the complex credit landscape!

Do you have questions about the planned rate increase? 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!

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