In Switzerland, the term "loan redemption" is used to describe in detail the transfer of a loan, including possible loan collateral, from one bank to another. In addition, the term redeeming a loan is used when a loan is repaid in full before maturity. In the case of a real estate loan, this can result in a so-called early repayment penalty in favour of the bank to compensate for possible interest losses.
As a rule, the loan agreement between borrower and lender - usually the house bank or another credit institution - remains in force until the agreed end. Situations such as change of residence or change of bank may also make it necessary to redeem the loan. Due to the possibly more favourable costs of another credit bank (credit interest), a debt rescheduling by means of loan repayment should always be thoroughly examined.
Why should a loan be redeemed?
It may be a good idea to pay off existing loan instalments with a new loan. Through a debt rescheduling or loan repayment, the existing loan can be replaced by a new and cheaper loan. In general, the cancellation of a loan is free of charge, which is regulated by the Swiss Consumer Credit Act. This means that providers can terminate their consumer credit prematurely at any time. All providers in Switzerland accept credit redemption; some providers require the transfer of existing loans from other financial institutions. The new lender then usually requires a so-called final statement of account from the last provider. This usually incurs costs for the consumer. These fees are approximately between CHF 100 and CHF 200.
Whether the rescheduling is worthwhile depends mainly on the interest costs of the existing loan compared to that of the new one. If the difference is sufficiently significant, the rescheduling of the old loan is often worthwhile. Unfortunately, it is not always possible to repay a loan, which may be due to the strict criteria for granting loans by lenders. It is therefore essential that the new lender confirms the loan repayment in advance, before the existing lender terminates the loan.