Getting a personal loan in Luxembourg

You can get a personal loan for pretty much anything that requires a substantial amount of cash upfront. It's worth considering carefully before applying for one though, as they come with costs as well as benefits.

What is a personal loan?

Put simply, a personal loan is a sum of money borrowed from a lender, which you agree to pay back over a set period of time, usually in fixed monthly instalments. For the privilege of getting cash upfront, you agree to pay interest to the lender, which forms part of your monthly repayments.

Personal loans are distinguished from mortgages - which we cover in greater detail elsewhere. They're also distinct from overdrafts - short-term credit extensions offered by your bank when your account reaches zero - and payday loans, which offer short-term loans with very high interest rates.

The overwhelming majority of personal loans are unsecured - this means that the loan is not backed by collateral such as a property. This is generally a good thing: it means that if you can't repay, it is much more difficult for the lender to repossess your home.

Personal loans usually charge fixed interest rates over a set period of time, often between six and 60 months. Repayments tend to be the same amount each month. Most banks offer loans between €5,000 and €100,000, though it's worth checking with individual lenders.

What types of personal loan can I get?

You'll see personal loans marketed under a wide array of terms. They might simply be called personal loans, or they might have more specific names like wedding loans, home improvement loans or even holiday loans. In practice these tend to be the same product: unsecured personal loans.

If you're looking to purchase a new or used car, you should consider other financing options such as part-exchange and leasing.  If the car is electric or hybrid, you could benefit from a modest interest rate deduction with certain providers. Lenders providing such discounts include Spuerkeess, BIL, Raffeisen, BGL BNP Paribas and ING.

A number of providers offer eco-loans for home improvement. The government-subsidised KlimaPrêt climate loan can be used for renovation work up to €100,000 per building. Myenergy.lu provides a breakdown of the kind of projects it can be used for. Example products include ING's Eco Loan, Raiffeisen's R-Eco loan, BGL BNP Paribas's energy retrofitting loan, and Ecoprêt from Spuerkeess.

How much will a personal loan cost me?

Loans are advertised with an APR (Annual Percentage Rate) or TAEG (Taux Annuel Effectif Global). The APR/TAEG is a guide to how much interest plus fees you'll have to pay back on your loan. Be careful though - the APR is only a guide and the actual rate you'll be charged will be determined after a credit check.

Most lenders have calculators on their websites to help you work out monthly repayments - which consist of a portion of the principal (the amount borrowed) plus the APR. The important thing is that you should never borrow more than you can realistically afford to pay back each month.

If you subsequently struggle with repayments, you should contact the lender immediately. It is in the lender's interest to help you make repayments - either by offering loan extensions or deferring repayments. Guichet.lu has a handy page setting out your rights and responsibilities.

Do I really need a personal loan?

Before getting out a loan, it's important to consider if you really need it. Just as there's no such thing as a free lunch, there's no such thing as free money. Borrowing comes at a cost - the better option is almost always to pay upfront if you can.

Ask yourself: do I really need this new car / home improvement / amazing holiday right now? If not, it might be a better idea to save up from a regular income. Also ask yourself - can I really afford the repayments? Will you be able to keep up with repayments even if you face unexpected expenses?

Where to find the best rates

All major banks and financial providers offer personal loans in Luxembourg. It can prove a bit time-consuming, but there is really no better way of getting a good deal than shopping widely. Even fifteen minutes spent searching for deals could save you hundreds of euros in interest and fees.

The following providers have online calculators to estimate the cost:
Credit Service, SFB, CPE, Spuerkeess, BIL, Raffeisen, BGL BNP Paribas, Partners Finance and ING.

Once you've got an idea of the likely cost, you can proceed with an application. Many providers let you do this in a variety of ways: online, by phone, by appointment or even by post. At this point you'll be credit-checked and offered a final deal. If all checks out and you're happy with the terms offered, congratulations you've got a loan!