The competition in the Swiss market for payday loans is intensifying. On the one hand, there are more and more online loan providers in Switzerland, on the other hand, the need for cash loans is hardly increasing on the customer side.
According to the Central Office for Credit Information (ZEK), around 116,650 new cash loans were concluded in 2017 in accordance with the Consumer Credit Act, in 2016 there were around 112,850 and in 2015 117,115.
The number of outstanding cash advances even decreased slightly: in 2017 there were 317,145, in 2016 around 321,250 and in 2015 around 333,910 cash advances. Only the average amount of cash advance increased slightly every year: in 2017 it was around USD 32,150 for new contracts.
Low interest rates: more competition
For borrowers, the intensified competition in connection with the legally prescribed maximum interest rate of 10% for private cash advances has the advantage that loan interest rates tend to decrease. However, the interest rate differentials between the loan offers remain large, as the analysis by YeSavers Finance shows.
“The competition in the private loan business has an impact particularly on loan seekers with good credit ratings,”
says Marc Nurkhard, analyst at YeSavers Finance.
“Both these new and traditional lenders with lower minimum interest offers and increasingly unusual marketing campaigns are advertising for these creditworthy customers.”
Fight for customers with marketing campaigns
In order not to fall behind in the struggle for new customers compared to new providers, traditional credit providers are trying to draw attention to themselves with special promotions. Cream Bank is currently offering a 20 percent discount – but only for loans from USD 5,000 or for a loan increase from USD 10,000. In addition, Cream Bank does not state when the special offer will be available.
Negative P2P lending loans
Even more striking was the recent marketing campaign by the online credit provider Best Bank, which advertised the media with a payday loan with a negative interest rate. However, if you looked closely, you saw that the special offer was subject to numerous restrictions.
The campaign lasted only two weeks and was only valid for loans with an amount of USD 5000 and a term of 12 months. In addition, the negative interest loans were only available to people with “very good credit ratings” and were limited to an unknown number of loans.
Large interest rate differentials for Swiss payday loans
For a long time, Cream Bank was the cheapest Swiss provider of consumer credit with an online loan interest rate of 5.9%. Tempi passati: Various credit institutions and online platforms now offer cheaper private loans. For example, payday loans are available from effective annual interest rates of 4.5% – if only for borrowers with a very good credit rating.
The effective annual interest rates of classic credit institutions vary from 4.5% to 9.95%, for peer-to-peer credit platforms from 4.5% to 9.9% (see the table in the appendix). Some loan offers are more than twice as expensive as the cheapest offers.
The rule of thumb applies: the better the creditworthiness of the borrowers, the lower the loan interest and thus the borrowing costs. However, lending rates can vary considerably from provider to provider even for identical loan applications.
Annual savings potential of USD 160 million
It is of course always the cheapest option not to borrow at all. If you still do not want to waive a loan or have already taken out a loan, you should compare the conditions of the current loan offers. Many borrowers could save considerable additional costs by switching to an interest offer that was cheaper for them.
A current projection by YeSavers Finance has shown that borrowers could save USD 160 million in borrowing costs if all borrowers switched from their previous cash loan to the cheapest offer in their credit rating class.
This corresponds to a saving option of around USD 500 per cash loan taken out (partial payment, current account and credit card loans not included). What many do not know: borrowers have the right to repay their consumer loan at any time.
Underestimated borrowing costs
An example shows that the borrowing costs are considerable. A loan of USD 30,000 for a term of 24 months with an effective annual interest rate of 9.95% costs USD 3066, for a term of 48 months USD 6194 and for a term of 72 months around USD 9,500. The longer the term, the more expensive the loan costs.
“Borrowers should therefore opt for the shortest possible term,”
Early repayment is worth it
Early repayment of the loan is highly recommended if it is financially possible for the borrower. This is shown by a calculation example: If a borrower repays a loan of USD 30,000 at an interest rate of 9.95% after 24 months instead of the chosen term of 48 months, this early repayment allows him to pay almost USD 1,700 in interest costs save up.
If all borrowers in Switzerland repaid their cash loans early in half of the chosen term, they could save around USD 190 million in credit costs – that is around USD 600 per cash loan – according to extrapolations from YeSavers Finance.