A loan (derived from the Latin credere “believe” and creditum “the person entrusted to good faith”) is the taking out of a debt with delayed repayment. In Switzerland, a loan is also called a loan.
The classic understanding of “credit” extends the term somewhat – beyond the pure legal relationship. In other words, “having a credit” meant “having something” in the sense of enjoying trust that you are solvent and therefore creditworthy. Example: The overdraft facility of a current account is a loan in the broader sense, a sign of trust, as long as it is only “granted”. If the overdraft facility is actually used, a loan in the (narrower) sense of a legal relationship arises, a loan.
Banks lend money in the form of loans (personal loans or small loans), which bank customers (non-banks) made available to them in the form of deposits. Loans can also be taken out from central banks for refinancing. Commercial banks always create money by granting loans. Lending a commercial bank must be covered by deposits and capital of the bank. Various regulatory requirements of the Astro Bank and the Best Bank have to be met here. When lending, a bank adheres to financing rules, including the golden bank rule, to minimize its financing risk.
From loan application to loan payment
From comparing the cheapest loans on the market to making the money available from the credit institution, the following nine phases are typically performed.
- Customer credit comparison
- Customer loan application
- Checking creditworthiness
- Credit check (also called economic creditworthiness)
- Checking the loan collateral offered
- Loan approval
- Conclusion of the loan agreement
- Position of the collateral
- Payment of the loan taking into account the cancellation period of 14 days in accordance with the KKG, eg by crediting the private account
Collateralization of the loan
The borrower generally takes out the loan from a bank, savings bank or other credit institution. The latter generally expects collateral in the value of the amount taken up or a large part of it in one of the following forms:
- Mortgages (mortgage or land charge) on a property,
- Pledging of claims, rights or movable property (not to be confused with the pledge)
- Assignment (assignment) of claims against third parties to the bank
- Transfer of property by way of security
- or through other collateral (eg change in discount credit).
A borrower receives money with the obligation to repay the borrowed amount plus interest at the agreed time. The loan interest is usually stated as annual interest and in percent per annum (“% pa”).
The private borrower receives the best interest by making a loan comparison.
There are also interest-free loans – especially for start-ups and publicly funded construction projects. As part of various funding programs from the European Community, the federal government, the federal states or municipalities, the borrower can also take advantage of interest subsidies or subsidies.
The interest rate mainly depends on
- the duration of the loan (Switzerland: normally 6 to 72 months)
- the fixed interest period, which is usually shorter than the loan term,
- the borrower’s creditworthiness,
- the collateral provided,
- the current and the expected interest rate level.