Swiss Consumer Credit Act (KKG): What It Regulates and What It Doesn't

The KKG does not apply to all loans. It covers exclusively consumer loans that meet the following three conditions simultaneously:

• Loan amount: CHF 500 to CHF 80,000
• Term: At least 3 months
• Purpose: Private consumption (not commercial)

Alongside classic cash loans (personal loans), leasing contracts, instalment credit (hire-purchase) and credit cards with an instalment option also fall under the KKG.

Not covered by the KKG: - Loans under CHF 500 or over CHF 80,000 - Mortgage loans (real estate financing) - Loans with a term of less than 3 months - Commercial loans and corporate loans - Account overdrafts without a fixed repayment agreement

This is an important boundary: a loan of CHF 81,000 is no longer subject to the KKG. In this case the lender is not required to carry out a legally mandated creditworthiness check or to file an IKO report. For loans over CHF 80,000 the bank bears the full risk itself - and consumer protection cannot challenge the contract on the basis of the KKG.

The creditworthiness check (KKG Art. 28-31) is the heart of the law. It is designed to prevent consumers from receiving loans they cannot repay.

What is checked?

The lender must check whether the applicant can repay the loan without becoming over-indebted. This is done through a budget calculation: all income is compared against all expenses. The difference - the so-called attachable quota - determines how much credit is possible.

The 36-month rule

The KKG requires that repayment capacity be calculated on the basis of 36 months - regardless of the term actually agreed. Even if you apply for a loan over 84 months, the bank must check whether you could repay the full amount within 36 months.

This rule has far-reaching consequences for the budget calculation:

Formula: Attachable quota × 36 months − interest portion = maximum loan amount

Example with an attachable quota of CHF 1,000 per month and an interest rate of 8.9%: - CHF 1,000 × 36 = CHF 36,000 (gross loan) - Less interest portion (12.08% over 36 months at 8.9%): CHF 36,000 − 12.08% = CHF 31,651 maximum loan

Creditworthiness is not the same as credit rating

A widespread misunderstanding: the KKG requires a check of creditworthiness - not of credit rating. These are two different things:

• Creditworthiness: Can the customer afford the instalments? (budget calculation) - legally required under KKG Art. 28-31
• Credit rating: How high is the default risk? (score, payment history) - not a legal requirement, a voluntary risk assessment by the bank

In practice, banks always carry out both - but only the creditworthiness check is legally required. The credit-rating check (e.g. via the CRIF score) is an internal risk decision by the bank that is not regulated by the KKG.

Existing obligations in the budget

Existing loans and leasing contracts are taken into account in the creditworthiness check - though not based on the actual monthly instalment:

• Existing loans: the outstanding balance is divided by 36 months, regardless of the agreed remaining term.
• Existing leasing: the actual monthly instalment is applied.

This distinction surprises many borrowers: an existing loan with a remaining balance of CHF 72,000 and a remaining term of 72 months is charged to the budget at CHF 2,000 per month (72,000 ÷ 36), even though the actual instalment is only around CHF 1,200. This is one of the most common reasons why debt restructuring improves creditworthiness.

KKG Art. 25-27 requires every lender to file a report with the IKO (Consumer Credit Information Office) when granting a KKG-covered consumer loan. An IKO inquiry must also be carried out before every new loan is granted.

In practice almost nobody talks about the IKO - instead the term «ZEK inquiry» has become established. The reason: both systems - the legally mandated IKO and the voluntary ZEK (Central Office for Credit Information) - are operated by the same office in Zurich and run on the same technical interface.

The difference is nonetheless relevant: with the IKO, contract data is deleted 14 days after the contract ends. With the ZEK it remains stored for a further 3 years (if concluded positively) or 5 years (in the event of a loss).

More on this in our guide: ZEK entry explained.

The KKG sets a maximum effective annual interest rate. This ceiling is periodically adjusted by the Federal Council and applies to all consumer loans covered by the KKG. The lender may not exceed this rate.

The maximum rate applies separately to different types of loan:

• Cash loans (personal loans): Maximum effective annual interest rate under the Federal Council ordinance
• Current-account overdraft credit: Its own maximum rate
• Credit cards with an instalment option: Their own maximum rate

The effective annual interest rate includes all loan costs - not just the nominal interest, but also processing fees, account management costs and all other ancillary costs. It is the only reliable yardstick for comparing different loan offers.

More on this in our guide: Effective annual interest rate explained.

After signing the loan agreement you have a statutory 14-day right of withdrawal (KKG Art. 16). Within this period you can withdraw from the contract without giving reasons.

The key rules: - The withdrawal must be made in writing (letter, not by phone or email). - The period begins on the day you received all contract documents. - If you withdraw, you must repay any amounts already paid out within 30 days. - Reasonable default interest is charged for the period between payout and repayment. - The lender may not charge you any fees or compensation for a withdrawal.

The right of withdrawal is a strong consumer-protection tool - it gives you the option to reverse a hasty credit decision without financial disadvantage.

The KKG gives you the right to repay your loan at any time, in full or in part, ahead of schedule (KKG Art. 17). The following applies:

• No early-repayment penalty: the lender may not charge a fee for early repayment. This clearly distinguishes Swiss consumer credit from mortgages.
• Interest savings: you only pay interest up to the day of repayment. The remaining interest is waived.
• Partial repayment: partial repayments are also possible at any time. The outstanding balance, and with it the remaining interest, is reduced accordingly.

This right is particularly relevant for debt restructuring: you can pay off your existing loan at any time and replace it with a new loan on better terms, without paying a penalty.

The KKG places extensive obligations on the lender:

Duty to inform

Before concluding the contract, the lender must clearly and comprehensibly inform you about: the effective annual interest rate, the total cost of the loan, the amount and number of instalments, the contract term, and the conditions for early repayment.

Creditworthiness check

Before granting any loan, the lender must check creditworthiness. Granting credit is prohibited if it leads to over-indebtedness. If the lender violates this duty, the contract can be challenged - the borrower then only has to repay the net amount, without interest and fees.

IKO reporting

Every new loan contract, every refinancing and every contract termination must be reported to the IKO.

Prohibition of over-indebtedness

The central principle of the KKG: «Granting credit is prohibited if it leads to over-indebtedness.» This mandatory notice must appear on every credit advertisement and on every page that promotes consumer loans.

In addition to the KKG, the Advertising Convention for Consumer Credit has applied since 1 January 2016, a form of industry self-regulation. Among other things, it prohibits:

• Advertising loans to finance holidays, weddings, taxes or gambling debts
• Misleading terms such as «instant loan», «express loan» or «loan without a check»
• Promises such as «guaranteed approval» or «loan for everyone»
• Targeted advertising to people under 25 years of age

Violations of the advertising convention can be punished with fines of up to CHF 100,000.