Learn everything you need to know about refinancing your current loan!
Multicredit.ch guide below outlines what you should look out for when cancelling a loan in exchange for switching lenders.
It is always a bad idea to take out new debts to cover your regular repayments of existing loans. Doing so will only add to your financial burden rather than lighten it.
However, replacing your existing loan with a more affordable online loan can pay off in certain instances. When you refinance a loan, you completely replace your existing one with a cheaper alternative.
How much does it cost to cancel a loan?
In accordance with Swiss consumer credit law, moneylenders cannot charge you a penalty if you cancel a loan before its due date. You can repay a loan at any time, without having to pay penalties to cover the lender's shortfall on future interest payments.
As a matter of fact, all Swiss providers accept loan buyback. Some providers, such as Migros Bank, even require that you also transfer existing loans from other lenders when you take out a loan.
In the case of a refinancing, the new lenders usually require a so-called final statement from the last credit provider. Unfortunately, this is associated with costs at some banks. For example, Cembra Money Bank charges a 150 CHF fee for a final loan statement, Bank-now is a little more complicated and charges a fee for the closing statement, which varies depending on the loan (maximum 200 CHF).
Credit refinancing: is it worth it?
Whether a loan refinancing is worthwhile depends on the interest costs of the existing loan compared to the new loan. Given that the interest expenses increase when the effective annual interest rate rises, a provider with a lower annual interest rate should be considered for the debt replacement.
If the difference in credit costs for the remaining term is correspondingly high, i.e. the new credit is significantly cheaper, a loan refinancing is definitely beneficial. You can easily compare the cost if approaching our experts for providing a non-bidding offer.
The following example can illustrate the refinancing calculation: You have taken out a loan of 50,000 Swiss francs with a term of 84 months and an interest rate of 9.9%, leading to a total cost of interest 18 596 Swiss francs. After 1 year, you decide to refinance the loan with a new one, as you are offered a new interest rate of 5.9%, leading to a total cost of interest for the remaining 72 months 9 232 Swiss francs.
Thanks to the exchange, you will save interest costs of around 6 000 francs until the end of the term. From this amount you still have to deduct any fee charged by the old credit provider for a final settlement. If this settlement fee is 150 francs, for example, you will still save a total of around 5 850 francs.
As the cost of the interest rate in the beginning of the borrowing period is higher and reduces with time, MultiCredit is advising its clients to consider a credit refinancing in the 1st half of the loan term, as this is bringing higher savings.
Unfortunately, refinancing is not always possible!
It may be easy enough to find a loan which costs less than your current one, but refinancing with more affordable loans is not always possible. The reason for this is that cheaper lenders (low-cost loan providers) often set high requirements for granting loan applications.
It is therefore important that you obtain confirmation of a loan replacement from the new lender before you cancel your loan with the existing one.This will help you avoid being stranded if the new lender ends up rejecting you should you fail to meet their criteria.
Increasing a loan amount or duration term
If you need more money, than your existing loan amount, it is a common practice to refinance your current loan with a larger one. You can also refinance your existing loan with a new loan that has a longer amortization term too, while keeping the same amount. While this can help to ease financial stress, you should understand that longer the loan term is, the more the loan will cost in total.
What are the right steps to refinance a loan in Switzerland?
1. Compare the interest rate costs for the remaining period of your existing credit with the those of other loan offers -> this information will be provided by our experts in a detailed non biding offer. Our experts will calculate the savings potential of refinancing too, so you can make an easy decision.
2. Consider your current lender charges for a loan settlement statement -> MultiCredit experts will let you know this amount, so no need to search for this information. As long as this fee is lower than the potential savings benefit of refinancing your loan, then moving to the cheaper loan is normally beneficial.
3. Confirm the new beneficial refinancing offer from the new lender.
4. Cancel your current loan -> MultiCredit will do this and any other administrative work for you, no need to worry about.