The ban stems from an initiative presented by socialist national councillor Josiane Aubert, news agency ATS reports.
Parliament's upper house on Monday approved the bill, which earned the backing of the National Council in September.
Arguing in favour of the initiative, Social Democrat Géraldine Savary said youth debt was a serious problem in Switzerland and that small loans, offered at high interest rates, contributed to the indebtedness of the country's young. She said small loans were too readily available and advertising contributed to their popularity.
Half of all indebted adults took on their first debt between the ages of 18 and 25, Savary said, adding that these small loans were sometimes as high as 40,000 francs ($43,000). In all, one third of Swiss people owing money to loan institutions are under the age of 25.
The initiative was passed by 19 votes to 17. As in September at the National Council, the support came mainly from left-wing parties along with a number of right-wing parliamentarians. The far-right Swiss People’s Party rejected the proposal, which it described as disproportionate, ineffective, and interfering with economic freedom.
A special commission will be tasked with establishing guidelines for the implementation of the new law.