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Responsible Credit – How to prevent over-indebtedness



As part of prevention and transparency vis-à-vis credit takers, the ASBCEF (Swiss Association of Credit Banks and Financing Establishments) wishes to make customers aware of the consequences of their commitment. The objective is also to locate the reasonable limits of a loan, and to leave a margin of safety in case of unexpected.

Consequently, ASBDEF member institutions must, since January 2016, systematically deliver an information notice to credit consumers, describing the context of the contract and possible solutions.

 

What charactersizes the granting of responsible loans

responsible loans

Switzerland is one of the strictest European countries in terms of consumer credit. One of the objectives of the federal law on consumer credit (LCC) and self-regulatory agreements is to protect the customer against the risk of over-indebtedness.

The member establishments of ASBCEF carry out an in-depth study of each client, as well as a serious check of their profile, in order to offer tailor-made solutions and appropriate advice because each situation is unique.

 

Analyze files on a case-by-case basis

responsible loans

Credit eligibility remains the main element for the loan taker. The amount borrowed must necessarily be within the financial capacity of the client. For this, it is important to know the situation of the consumer as a whole, taking into account his income but also his expenses.

Thus, the member institutes of ASBCEF systematically analyze the overall financial situation of the loan taker, and for each client, a personalized risk profile is created in order to be able to accurately assess their request.

Therefore, the credit institution can determine the amount of financing eligible from the individual budget, taking into account the monthly payments that will have to be repaid, but also providing sufficient latitude to allow the loan taker financial flexibility in order to make in the face of the unexpected.

In other words, it is a question of leaving the customer a sufficient margin of safety to absorb any unexpected risks, and avoid being strangled by a credit that is too tight due to an unforeseen event.

 

Leave financial latitude to deal with reversals of fortune

financial latitude to deal with reversals of fortune

The customer should keep in mind that many unforeseen events can occur during a loan taken out. For example, the customer can:

  • to lose one’s job
  • suffer a major accident, or a serious illness
  • or an expensive divorce

These numerous risks will have a direct or indirect consequence on the credit taken out, since they can generate a very significant change on income or expenditure.

It is therefore very important to consider these risks before taking out the loan, and to provide for a financial latitude which allows the consequences to be amortized. In this case, the consumer can minimize these risks thanks to very targeted preventive measures.

 

Recommendations

loan Recommendations

In the event of a hardship, it is strongly recommended to quickly contact the financial institution concerned, and if necessary, the institution will be able to offer adequate solutions concerning the repayment of the credit taken out, in order to avoid worsening of the client’s financial situation.

In order to prevent the risks mentioned, the credit institution can for example offer the conclusion of an additional guarantee to cover monthly payments, in order to help the credit taker to protect himself against a default in payment. This precaution thus avoids situations of over-indebtedness, or even personal bankruptcy. It is a reasonable measure, which follows the adage: prevention is better than cure.

In all cases, it is strongly recommended that the client seek the advice of the credit institution, to draw up an inventory of solutions and applicable measures, according to their personal situation.

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