Credit is never free of charge. You always pay extra for a credit and should thus make comparisons between different credit options and offers.
You can compare the prices of different credits by examining their costs and effective interest rates.
The effective interest rate of a consumer credit, as laid down in the Finnish Consumer Protection Act, is given as percentage amount. Higher the effective interest rate, more expensive the loan.
There is substantial variation between the costs charged for consumer credits. In addition to the loan itself, you also have to pay interest, expenses and other fees. These include
- nominal interest, which usually consists of the market rate (in most cases, 1, 3 or 12 month euribor or the prime rate charged by banks) plus a customer-specific margin;
- costs arising from the establishment of the credit;
- costs arising from the establishment of an overdraft facility and the annual fees charged for the facility;
- handling charges;
- other expenses, such as a hire purchase supplement.
Credit costs also depend on the number of instalments (duration of the loan period). As a rule: longer the loan period, more expensive the loan.
Price of credit