Earmarked loans – Good to know

The Swiss family financier Awina supports families with earmarked loans for daycare financing. What is meant by a earmarked loan, when taking out a loan can make sense and when not, and what you should know before applying.

Whether it is a mortgage, loan or credit card, it is hard to imagine our everyday lives without loans, which are used to finance a wide variety of things – for example college, a new car or a home. And today, those who want help financing daycare places can find a solution as well. As of November 2021, Awina grants earmarked loans to families in Switzerland to help them afford daycare costs. The platform is supported by strong partners such as the umbrella organization Pro Familia Schweiz, the Stiftung Mercator Schweiz and the Stiftung Kinderbetreuung. But what is an earmarked loan actually?

What is a loan?

In very general terms, a loan refers to the payment made by a lender to a borrower. That is to say: If you take out a loan as a private person, you receive a certain amount of money from a lender, which in most cases is a bank or a bank-related institution. You then repay the amount plus interest in monthly installments within the agreed term. A loan is therefore limited in time. The exact conditions of the loan are determined in advance. These include, for example, the interest rate, which determines how much the loan costs the borrower – and conversely how much the lender earns from the loan.

Earmarked vs. non-earmarked – what is the difference?

Depending on circumstances and needs, there are different loans that individuals can take out. One distinction is whether a loan is earmarked or not.

The name suggests it: while with a “normal” loan you can use the money freely, with a purpose-linked loan the money may only be used for the purpose defined in advance.

For example: If Awina supports the Müller family monthly with an earmarked loan of CHF 1,500 for their child’s daycare place, the family can spend the amount exclusively on the daycare costs. The family does not receive the monthly amount either, it is transferred directly to the daycare center by Awina.

When does a loan make sense – and when not?

Basically, a loan is suitable if you are investing in the future via further education or childcare or are making a long-term purchase such as a car or property, are bridging financial bottlenecks in the short term or need additional capital in the near future and are therefore unable to save. It is also important to have a stable income and to be able to pay off the loan in installments without having to draw on your savings. On the other hand, a loan is not suitable for short-lived products, activities and vacations. Likewise, a loan cannot solve structural financial difficulties. In this case, the problem is only postponed and can cause one to fall behind in repaying it. 

What do you need to know before applying for a loan?

The Federal Law on Consumer Credit strictly regulates the granting of credit in order to protect borrowers from over-indebtedness. Therefore, anyone applying for a loan is first checked for creditworthiness by the lender. This involves assessing a person’s ability to repay the loan on the one hand and the likelihood of them repaying the loan on the other. 

In Switzerland, around half of all credit applications are rejected. This is important because: A rejected credit application, including the reason for the rejection, is stored at the Swiss Informationsstelle für Kosumkredit (IKO) and can be viewed for two years. This affects the chances of obtaining a loan in the future. That is why it makes sense to find out in advance what the requirements for accepting an application are and to make sure that all documents and information are correct.

The Awina platform also offers applicants the opportunity to test whether the decision will be positive or negative before sending the loan application. In this way, any errors in the application can be corrected without harming the family’s creditworthiness.

Awina is the first financing solution for daycare places in Switzerland. The company actively supports families in financing daycare costs with the help of loans. All loans granted by Awina are earmarked for this specific purpose. The money is not transferred to the family, but directly to the daycare center.