Personal loans: what you need to know
Personal loans in Luxembourg: how they work, what they cost, your withdrawal rights and what to consider before you borrow.
A personal loan can help finance a purchase or a personal project.
Before committing, it is important to understand the total cost of the credit, the repayment conditions, and the rights that protect you as a borrower.
Key takeaways
- A personal loan is used to finance private purchases or personal projects
- You must repay the borrowed amount and the interest
- The bank must assess your ability to repay
- You receive standardised information through the SECCI form
- You have a 14-day right of withdrawal after signing
What is a personal loan?
A personal loan, also called consumer credit, is a loan granted by a bank to finance private purchases or personal projects, such as a car, furniture, equipment or a trip.
In return, you must repay:
- the borrowed amount (capital)
- the interest
Please note
A personal loan is not free and should remain an exceptional solution. It is important to ensure that it does not unbalance your budget.
Scope
A personal loan cannot be used to finance real estate, construction works or professional activities.
Before signing: what happens and what the bank must check
Before granting a personal loan, the bank must provide clear information and assess your creditworthiness.
You must receive information about:
- the duration of the credit
- the total cost of the credit
- the interest rate
- the repayment conditions
- the conditions for early repayment
- your right of withdrawal
- the consequences of non-payment
These are called pre-contractual information.
Compare offers: the SECCI document
Before signing, you receive a Standard European Consumer Credit Information (SECCI) form.
This document:
- summarises the key features of the credit
- uses the same format in all banks
- helps you compare offers easily
- Transfer of salary: as an employee, you agree to authorize your bank to deduct from your salary the amount that remains to be repaid on your personal loan.
- Surety: someone acts as surety for you and agrees to repay the loan for you.
How does the bank assess your situation?
The bank must verify whether you are able to repay the loan.
This assessment is based on:
- your income (salary, pension, etc.)
- your expenses (rent, bills, other loans)
- your financial commitments
- your level of debt
This assessment is required by law to ensure that the credit is adapted to your financial situation.
Reflection period and right of withdrawal
In Luxembourg, there is no statutory reflection period for consumer credit.
However, a bank may offer one voluntarily. If so, it will be indicated in the SECCI form.
I have signed a personal loan. Do I have the right to change my mind and cancel the contract?
You have 14 calendar days to withdraw from your personal credit agreement. And this is without having to state the reasons why you wish to withdraw. We recommend that you do this in writing.
The withdrawal period begins:
- On the day of the conclusion of the credit agreement
- Or the day on which you receive the general terms and conditions of the agreement, the contractual terms and conditions and the information to be included in the credit agreement, if this day is later than the day on which the agreement was concluded.
In any case, if you have already received amounts, you will have to pay them back, as well as the interest on these amounts.
Interest rates explained
When you borrow money, you pay interest on the amount borrowed.
Personal loans usually have a fixed interest rate.
Fixed interest rate
- the rate remains the same
- your repayments remain stable
- provides predictability
Variable interest rate
- the rate may change over time
- your repayments may vary
- less common for personal loans
What does a personal loan cost?
The total cost of a personal loan is expressed through the Annual Percentage Rate (APR / TAEG).
APR (TAEG)
The APR includes all costs related to the loan, such as interest and administrative fees. It allows you to compare offers easily.
The APR must be indicated:
- in the information provided by your bank
- in any advertisement mentioning an interest rate
Does the bank require guarantees?
The bank may require guarantees to secure the loan.
Examples include:
- Salary assignment: repayments may be deducted directly from your salary
- Surety: another person agrees to repay the loan if you cannot
If you do not repay the loan, the bank may use these guarantees.
How is the loan repaid?
You repay the loan according to the credit agreement.
In most cases:
- repayment is made through monthly instalments
What happens if you do not repay the loan?
- late interest and fees may apply
- the bank will usually contact you to find a solution
- further measures may be taken if the situation persists
This may affect your financial situation and creditworthiness.
Can I repay my loan early?
You can repay your loan partially or in full before the end of the contract.
- You must inform the bank in writing
- The cost of the loan is reduced accordingly
If the interest rate is fixed and the repayment exceeds certain thresholds, compensation fees may apply.
Key terms explained
Consumer credit
A loan granted for private purposes.
SECCI
A standardised document used to compare credit offers.
APR (TAEG)
The total yearly cost of the loan.
Surety
A person who agrees to repay the loan if the borrower cannot.
Salary assignment
An agreement allowing the bank to deduct repayments from your salary.
Right of withdrawal
Your right to cancel the contract within 14 days after signing.