A look back at the specificities of credit in Switzerland and an overview of borrowing and payment practices in Europe.
Credit in Switzerland: the main rules.
All operations relating to the filing of a credit file, the analysis of the file, the contracting and the payment of the amount borrowed, are scrupulously regulated by the Law on Consumer Credit (LCC).
The goal? Provide a legal framework that allows all parties concerned (lenders, borrowers, authorities, etc.) to act transparently, fairly and in the public interest in order to avoid cases of over-indebtedness.
Here are some key elements related to consumer credit in Switzerland detailed in the federal law
- A credit is a contract.
- Credit includes leasing and credit cards.
- The law applies to loans between CHF 500 and CHF 80,000.
- The law applies to repayment periods of more than 3 months.
- A maximum interest rate of 15% is currently provided.
- A right of revocation applies to the lender.
- The law allows the borrower to repay the entire consumer loan before the due date.
- As noted, the principle of the law is aimed at avoiding over-indebtedness of borrowers.
- The lender is obliged to report the loan granted to the information centre. Databases tracking your credit history are very often used by financial institutions to validate or reject applications.
- No administrative charges need to be paid to the broker processing your credit application.
What is the appetite for consumer credit in Europe?
If the legal framework seems comprehensive in Switzerland and designed to protect the consumer, what about practices outside Switzerland? Is there a greater or lesser appetite for credit in other European countries?
A regulatory framework exists at European level. This is valid for the Member States of the Union.
In terms of trends by country, there is a difference in behaviour between southern and northern Europe.
In recent years, against the backdrop of the crisis, countries such as Italy, Spain and Portugal have resorted to credit. The most cautious are the Scandinavian countries, especially Denmark.
The British lead the way with 67% of the population having used some form of credit. Then, the French, Portuguese, Germans and Italians close the podium with about 50% of the population.
The main reasons for using consumer credit are:
- Financing for the purchase of a vehicle.
- Renovations or the purchase of appliances.
- Paying unexpected bills.
In addition, the utilization rate of consumer credit has particularly increased among young adults aged 25 to 34. With this loan, they increasingly want to finance a trip.
Other reasons given in market analyses are marriage, a move, and studies.
A single European framework?
There is a Directive of the European Parliament and Council covering consumer credit. However, each country is free to add or even adapt the conditions according to its local legal framework.
It is therefore a relatively broad European framework that allows for the setting of limits within which each country can navigate according to its own needs.
However, the spirit remains substantially similar to the law in force in Switzerland. Scope of application protection of the consumer's interests, file analysis, information database, contractual elements, revocation, fees, etc.
As the European Union is a free trade area, the need to regulate cross-border credit operations was particularly important.
The aim of the Directive was therefore to define a harmonised Community framework.
However, if we take a closer look, while acknowledging similarities with the Swiss Federal Law on Consumer Credit, we can conclude that the Swiss rules seem stricter for lenders and more protective of the borrower. These include issues relating to the right of revocation, the right to early repayment and the application of administrative fees, which are more reasonable in Switzerland compared to the European framework.
This should be taken with a bit of hindsight, however, because, as mentioned above, each country can adopt more or less strict clauses depending on its own legislative or cultural framework.
And what about other forms of credit?
If we take mortgage credit as an example, we see a certain degree of inverse contrast with consumer credit.
For the time being, Northern European countries make extensive use of home loans. Denmark, Sweden, Norway, Ireland... are the champions of the mortgage. The amounts are generally higher and the loan terms are longer.
France is 8th in the ranking and applies relatively low borrowing rates at the European level. Countries such as Germany or the Netherlands generally apply higher rates.
Contrary to consumer credit trends, few Spaniards or Italians take on debt to buy a property . This is especially true in Eastern European countries, where an average of less than 10% of the population has an outstanding mortgage.
Credit card. First reflex to pay everywhere?
While we can conclude that there is a surge in consumer credit in the south and in the north for mortgages, the rate of use of digital payment methods also varies greatly from country to country and from region to region.
At the top of the list, British consumers are the most fond of electronic payment methods. Less than 20% of payments are now made in cash. Denmark and Portugal bring up the rear.
On the other hand, Germany still relies heavily on cash, making more than 70% of its transactions in banknotes and coins. Croatia and Austria are following this trend but have not reached this quota.
France is in the middle with nearly 60% of electronic payments. Switzerland is also in this proportion.
The credit card seems to have conquered the English but is struggling to find its place in Germany.
The advantages of local credit
Regardless of your nationality, if you are based in Switzerland and of legal age, you can claim a Swiss made loan.
You will benefit from a protective legal framework and the quality of services offered by market players.
It remains to be seen whether a personal loan is necessary because, true to the spirit of the law applied, a loan is a contract and over-indebtedness must be avoided.
If you are moving forward, opt for a partner who will be able to advise you professionally and who will be committed to providing personalized support that respects your budgetary reality.
Preferably, choose a reputable financing platform with a wide range of banking partners.
Finally, choose a tailor-made and human approach tailored to your reality and your needs.
Still looking? Let's make it simpler, contact Milenia
