Credit is available on different terms and at different prices. For this reason, you should make comparisons between credit options and also consider your own ability to repay 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.
In addition to the above factors, the credit costs also depend on the length of the loan period and the repayment method. As a rule: longer the loan period, more expensive the loan.
Price comparison of different credits
You can compare the prices of different credits by examining their costs and effective interest rates.
Before you take out a loan, the lender must also provide you with the details of the loan on the Standard European Consumer Credit Information form, the main purpose of which is to make comparisons between credits easier.
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.
When granting credit card loans and other overdraft facilities, lenders illustrate the costs involved by giving the typical amount of credit used as a basis for the calculations (usually EUR 1,500) and the corresponding effective interest rate.
You are expected to repay a one-time credit in one instalment on an agreed date. If the one-time credit is offered for a specific product, whose cash price is known, you have the right to know both the effective interest rate and the total costs of making the purchase by credit.
You can pledge a car, a flat or other property as collateral. If you are unable to repay the loan as agreed, the repayment is made using the items pledged as collateral. This means that you may have to sell the items concerned. The collateral does not always cover the entire loan, which means that you may still have outstanding debts after the sale of the items.
Interest rate cap
- If the credit agreement has been made on or after 1 September 2019, the interest on the loan taken out by a consumer may not exceed 20 per cent. If under an agreement made on or after 1 September 2019, a consumer must pay credit expenses other than the interest on the loan that the consumer in question has taken out, these expenses may not exceed, on a daily basis, 0.01 per cent of the credit amount or the credit limit set out in the credit agreement during the validity of the credit agreement. However, the credit expenses other than the interest on the loan taken out by the consumer may never exceed 150 euros each year. The annual upper limit on expenses is a last-resort cap and it is not used if the maximum daily amount of the credit expenses other than the loan interest remain under 150 euros each year.
The price regulation introduced on 1 September 2019 is not applied to hire purchase loans of vehicles and housing loans for which a home or other property has been deposited, unless the consumer also has the right to withdraw cash under the hire purchase agreement.
- These new restrictions are not used for credit agreements made before 1 September 2019 but the old interest rate cap limiting the actual annual loan interest still applies to these agreements. Under the old arrangements, if the amount of credit or the credit limit granted to the consumer is less than 2,000 euros, the actual annual interest cannot be more than the reference rate plus 50 percentage points. This interest rate cap does not apply to consumer credits that can only be used to pay for goods or services.
SMS messages with additional charges forbidden
The use of text message services or other communication services that bring additional charges related to marketing of credit or the use of credit services is forbidden. A lender may not charge consumers for loan applications, loan decisions (e.g. confirmation message) or transfer of payment dates made via text messages.