The loan agreement is one of the most ancient and fundamental contracts in the law of obligations. In Swiss law, the Code of Obligations distinguishes two main forms: the loan for use (arts. 305 to 311 CO) and the mutuum/consumption loan (arts. 312 to 318 CO), to which monetary loans belong. These contracts raise important practical questions: interest rates, usury, guarantees, early repayment. PBM Avocats in Geneva and Lausanne intervenes in drafting loan agreements and in disputes relating to their performance or non-performance.
Types of Loans in Swiss Law
| Type | Legal Basis | Key Feature | Applicable Law |
|---|---|---|---|
| Personal loan (bank) | Art. 312 CO + CCA | Rate cap (10% TAEG) | Consumer Credit Act |
| Private loan | Art. 312 CO | No mandatory written form | CO only |
| Mortgage loan | Art. 312 CO + art. 824 SCC | Secured by mortgage certificate | CO + SCC + banking law |
| Intercompany loan | Art. 312 CO | Arm's length price required | CO + tax law |
| Loan for use (commodatum) | Art. 305 CO | Gratuitous, return of same item | CO |
Essential Clauses of a Loan Agreement
- Amount of the loan: in figures and words, with currency
- Disbursement date: when the lender pays the sum to the borrower
- Duration and maturity: fixed repayment date or amortisation schedule
- Interest rate: annual rate, calculation basis, payment terms (monthly, quarterly)
- Amortisation: fixed instalments, bullet loan, progressive amortisation
- Guarantees: personal guarantee (suretyship), pledge, mortgage
- Early repayment: possibility and conditions (break costs)
- Events of default: circumstances allowing the lender to demand immediate repayment
- Applicable law and jurisdiction: generally Swiss law and Geneva or Zurich courts
Usury and Maximum Interest Rates
Art. 157 of the Swiss Criminal Code (SCC) prohibits usury: it is a criminal offence to exploit a person's distress to obtain disproportionate financial advantages. In civil law, an excessively high interest rate may be reduced by the court under art. 21 CO (undue advantage). The Consumer Credit Act caps the maximum annual effective rate: 10% for personal loans and 12% for credit card overdrafts.
Is a loan agreement between private individuals subject to the Consumer Credit Act?
No. The Consumer Credit Act (CCA) only applies to loans granted by a professional lender (bank, finance company) to a consumer (natural person). Loans between private individuals (natural persons acting outside their professional activity) are governed exclusively by arts. 312 to 318 CO, without the protective formalities of the CCA. However, good faith (art. 2 SCC) and usury prohibition (art. 157 SCC, criminal law) still apply.
What interest rate applies if none is contractually set?
If the loan is gratuitous, no interest is owed. If the loan is remunerated but the interest rate is not specified, the legal interest rate of 5% per year applies (art. 73 CO for commercial relationships, art. 104 CO for default). For consumer credit, the CCA caps the maximum annual effective rate (TAEG): 10% for personal loans and 12% for overdrafts (rates set by the Federal Council). Any clause exceeding these caps is null (art. 157 SCC).
What happens if the borrower cannot repay?
If the borrower does not repay on the agreed date, the lender may demand immediate repayment (termination for default) after sending a formal notice (art. 107 CO). Interest at default rate applies from the date of default (art. 104 CO). The lender may initiate debt enforcement proceedings in Switzerland (request for payment order under the DEBA/LP). In the case of a secured loan (mortgage, pledge), the collateral can be realised.
Is a written loan agreement always required?
No. A verbal loan agreement is legally valid (arts. 312 et seq. CO do not require written form for validity). However, written form is strongly recommended for evidential reasons. For consumer credit, the CCA requires a written form for validity of the contract. For mortgage loans, the deed of mortgage certificate (cédule hypothécaire/Schuldbrief) requires an authentic notarial deed.