Finland still has one of the cheapest loans for the population: how is it working?

A year ago, citizens of different countries were actively applying for loans, but the coronavirus pandemic made changes in this area. Many economically developed countries introduced restrictive measures aimed at reducing the number of problem loans.

Strict requirement

The Finnish government has adopted the most stringent regulations – consumer loan rates can’t exceed 10%. Opponents of this decision argued that this would provoke an increase in the number of loans, but the excitement was short-term.

According to the financial and analytical resource Laina Finance experts, consumer loans in Finland amounted to €16618000 in September 2020 and €16597000 in October. In November, the amount reached €16645000, and it increased up to €16674000 in December.

For comparison, in Russia, consumer credit in September 2020 was ₽19300798 and increased to ₽19666283 in October. Meanwhile, in France, it grew to €1551664 in December from €1541995 in November 2020. In Norway, it was NOK 3805927 in November and increased to NOK 3807296 the next month.

Also, the regulation of interest on the loan prohibited credit mediation and direct advertising of credit services.

The low rate is valid in 2021

The adopted restrictions justified their existence, and the government decided to extend them. So, Finland still has the cheapest loans, but not for everyone.

The interest rate price for debtors is different

The restriction on credit interest will end on the 30th of September. Then, the rates defined by the contract will become actual.

Laina Finance analysts advise considering several aspects:

1. Price regulation does not limit the cost of the loans issued before September 1, 2019.
2. In contracts signed after September 1, 2019, the rates can’t exceed 20%.
3. In agreements concluded before September 2019, the rates can be 20% or higher, even reaching 200%.
4. Interest rates for withdrawal of funds under interim agreements can’t be higher than 10%. But it doesn’t refer to card loans and goods.

Interest rates and advertising

New legislation obliges advertisers offering credit and intermediary services to indicate that the rate is temporarily limited to 10% but can be changed in the future.

In advertising, it is necessary not only to mention a possible increase but to use the word “warning” and clearly indicate the normal rate, which will be implemented after the end of the time limit.

Although direct marketing of loans is illegal, you can indicate the possibility of hire-purchase when purchasing a product.

Consumer lending requires comprehensive regulation

Laina Finance analysts note that the regulatory measures regarding prices and direct marketing are justified in the current difficult situation. The recent disturbances caused by the pandemic require solid risk management practices implemented by all consumer finance organizations in Europe. 

Specialists focus on the importance of segmenting customers according to financial problems, people potentially in need of support, and those going through difficulties. Adjusting loan conditions and regulations is crucial as this will avoid imminent insolvency and the increase of non-performing loans. Some European governments have also implemented several measures to protect consumers, such as waiving fees on overdue loans, extending maturities, and others. 

Finally, future excellence depends on the authorities’ ability to implement accurate and preventive scenario planning. The difficult situation at both the global and European levels requires quick adaptation to the new post-pandemic reality characterized by changes in financial needs or channel usage.