Credit is never free of charge. You always pay extra for a credit and should thus make comparisons between different credit options and offers.
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 comparison of different credits
You can compare the prices of different credits by examining their costs and effective interest rates.
Before taking out a loan, you have the right to receive all details of the loan on the Standard European Consumer Credit Information form. You can use consumer credit information when making comparisons between different loans.
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 amount of credit or credit limit is EUR 2,000 or less, the actual annual interest cannot be more than the reference rate increased by 50 percentage points. This also applies to consumer credits that include the right to withdraw cash.
For instance: the interest rate cap is 50.5 per cent with the reference rate valid between 1 January 2014 and 30 June 2014.
The lender cannot circumvent this interest rate cap by seemingly setting the credit limit 2,000 euros and therefore limiting the use of credit without any proper justification. A proper justification would be points such as a risk to the security of credit card use. The interest rate cap is not used for 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.