Paying a loan back early in Switzerland

In Switzerland you can pay back a consumer credit, such as a personal loan, before the end of its term. You then owe no interest for the time you no longer use the credit, and the other costs for that time must be reduced fairly (KKG Art. 17). Your contract must state this right, and no contract can take it away (KKG Art. 9 and 37). The earlier you repay, the more interest you save. Before you pay, ask your lender for the exact amount on the day you plan to pay, and keep enough money aside for the bills that will still come. At Swizeo you can repay all or part of your loan at any time, and you pay interest only up to the day you repay.

What the law says

The Consumer Credit Act (Konsumkreditgesetz, KKG; in French and Italian LCC) covers consumer credits from CHF 500 to CHF 80’000 (KKG Art. 7). For a personal loan, it sets four rules on paying back early.

• You may repay early. You can meet your obligations under a consumer credit contract before they fall due (KKG Art. 17).
• The interest for the time left falls away. You have a right to have the interest for the part of the term you no longer use waived, and to a fair reduction of the costs for that part (KKG Art. 17).
• Your contract must say so. A consumer credit contract must state this right (KKG Art. 9). A contract that leaves out a point the Act requires is void: you then repay the amount you received by the end of the term, in equal instalments, and owe no interest or costs (KKG Art. 15).
• No contract can take it away. The Act’s rules may not be changed to your disadvantage (KKG Art. 37).

The Act sets no notice period and no minimum amount for paying early, and it does not say how a part payment changes your plan. Your contract settles those points, so read it before you pay.

How much you save

With a loan repaid in equal monthly payments, each payment first covers the interest on what you still owe, and the rest repays the loan. So the interest is highest in the first months and shrinks as your debt shrinks. Paying back early saves the interest of the months you no longer borrow for.

Take the example on our personal loan page: CHF 10’000 over 12 months at an interest rate of 3 % a year, an effective annual rate of 3.04 %, a monthly payment of CHF 846.94 and CHF 163.25 of interest in total. If you repay everything right after one of your monthly payments, you pay what you still owe instead of the payments left:

The last of the 12 payments is CHF 846.91, because the interest is rounded each month. After three payments, more than half of the loan’s interest is still to come. After nine, the saving is small.

If you repay between two payment dates, ask your lender how it counts the interest for the days since your last payment. To see the figures for your own amount and term, open the repayment table of the loan calculator. Each row shows what you still owe after that month.

Paying back part of a loan

You can also pay back only part of what you owe. After a part payment, your plan can change in one of two ways:

• A lower payment, the same end date. Your monthly payment falls, and the loan ends when it was going to.
• The same payment, an earlier end date. You keep paying the same amount and finish sooner.

The second saves more interest, because what you owe falls faster. The first leaves more room in your budget each month. Ask your lender which one it applies, or whether you can choose, and get the new plan in writing before you pay.

Is it worth paying back early?

Paying back early always saves the interest for the unused part of the term, because the Act gives you a right to have it waived (KKG Art. 17). Whether it is the right move depends on what else the money is for.

• Keep a reserve. If repaying empties your savings, one large bill can leave you short. Borrowing again then means a new credit check, and perhaps a higher rate.
• Pay off the most expensive credit first. If you have other credits, such as a card balance you pay in instalments, compare the effective annual rate of each. It expresses the whole cost of a credit, interest and other costs, as a yearly percentage (KKG Art. 5 and 6).
• Late in the term, the gain is small. In the example above, repaying after nine of twelve payments saves CHF 12.65.
• Just signed? You can still withdraw within 14 days of receiving your copy of the contract (KKG Art. 16). If the money was already paid out, you then repay it without interest or costs (KKG Art. 15 and 16). See the right to withdraw from a loan.
• Found a cheaper loan? Replacing your loan with a new one is a way of paying it back early. See replacing an existing loan.

How to pay back early, step by step

1. Read your contract. It must state your right to repay early (KKG Art. 9). Look for how to tell the lender, where to pay and how a part payment is applied.
2. Ask for the exact amount, in writing. Ask for the amount that settles the loan on the day you plan to pay, how long that figure is valid, and the account and reference for the payment.
3. Check the figure. It must charge no interest for the time after that day, and other costs for that time must be fairly reduced (KKG Art. 17). If a line is unclear, ask the lender to explain it.
4. Pay the exact amount in time, with the reference the lender gave you. If the figure is no longer valid, ask for a new one first.
5. Ask for written confirmation that the loan is settled and the contract has ended. Keep it with your contract.

What happens to your credit records

When a lender grants a consumer credit, it reports it to the IKO, the information office for consumer credit (KKG Art. 25). The IKO keeps running contracts only. When the lender deregisters a contract that has ended, the IKO deletes it at the latest 14 days later.

If your lender is a member of the ZEK, the central office for credit information, the ended contract stays there for 3 years from the date of its rating. A contract rated as a partial or total loss, or with legal uncertainties, stays for 5 years.

Both offices say that an entry about you is not negative as long as you meet your obligations. A loan paid as agreed shows that you pay correctly. You can order your own extract from each office, free of charge, and it comes by post. See ZEK and IKO explained.

Leasing, cards and overdrafts

• Leasing. A leasing contract for private use follows its own rule. You can end it with at least 30 days’ notice, to the end of a three-month leasing period. What you then owe on top of the rates already paid follows the table in your contract (KKG Art. 11 and 17). The guide car loan or leasing explains that table.
• Cards and overdrafts with a credit option. The same right to repay early applies, with the interest for the unused time waived (KKG Art. 8 and 17).

Paying back early at Swizeo

• You can repay all or part of your loan at any time.
• You pay interest only up to the day you repay.
• For a part payment, you choose a lower monthly payment or a shorter term, and you see both side by side before you confirm.

These terms apply to every Swizeo loan, from CHF 1’000 to CHF 1’000’000.

Next step

See what you would still owe month by month: put your amount and term into the loan calculator and open its repayment table.