The Finnish loan consumer seems to face a severe issue with high interest rates on their loans. At the end of 2018, Finland’s Ministry of Justice claimed that a bill that targets to solve the country’s high interest rate consumer loans is under debate and consultation, later being sent to the legislation appraisal council.
High Interest Rates and Financial Troubles
High interest consumer loans seem to be one of the most severe issues Finland is struggling with since 2013. In 2013, consumer loan lenders bypassed legislation that restricted the interest rates on loans bigger than 2,000 euros. Consumer loan lenders also started to give loans of or above 50,000. While the current legislation is restricting the interest rate on loans under 2,000 euros to 50%, interest rates applied to loans above that amount are under no limitations.
The legislation under debate would put a cap on interest rates applied on all loans, with the exception of those with real collateral.
Lending institutions seem to be against the bill, claiming that a similar measure will impede the credits linked to household gadget purchase. A series of lenders also argued that if the consumer encounters financial difficulties, it’s their exclusive fault.
In spite of lender’s protests, specialists say that the high interest rates collected by lending institutions until now have created enough resilience against major losses. Even if the borrower ends up not paying their loan, the profits are still due to remain high, according to multiple financial experts in Finland.
Interests Rates as High as 100%, With Real Annual Interest Rate Over 200%
Antti Hakkanen, the minister for justice, says that interest rates on consumer loans have been in some cases as high as 100% and the real annual interest rate surpassed 200%, in most of the cases. Consumer protection has since become one of the main goals of the Ministry of Justice; the Finnish consumer seems to face a critical financial situation in case they get approved for a similar loan.
But banks in Finland seem to have a different opinion. According to Bank Norwegian, one of the main banking institutions in Finland, the institution has underestimated the level of losses in Finland. According to them, 9% of the total of loans offered ended up not being paid interest or amortization. However, the bank doesn’t seem to be highly concerned with the non-performing loan situation. At the end of 2018, the Bank Norwegian has transferred more than 160 million worth of loans to collecting agencies. That 1060 million were comprising consumer loans and credit cards.
According to the Guarantee Foundation, loans without collateral have doubled in the past five years. People seeking help from the Guarantee Foundation usually come when their debts accumulate 34,000 euros. Since 2013, the amount has increased by 11,000 euros. Finish citizens usually collect their debt from mortgages, but the issues only appear in consumer debt’s case.
A Lack of Control and Intervention Tools
The current control system that regulates financial matters in Finland lacks severely control and intervention tools. Currently, the only thing that can be done is asking companies to change their practices. But soon, the legislation that puts the consumer in a more favorable spot will be part of the consumer protection act.
Finnish culture is a prude when it comes to financial matters. While people tend to hide their wealth, they also tend to hide their financial struggles. The Guarantee Foundation encourages open communication and negotiation and to make their financial issues known to their government. This may be the only solution to fix this national problem that is not restricted to low-income families, contrary to popular belief.
In Finland, people take out new loans to pay older ones and this creates a vicious circle. Trying to avoid by any means a negative credit marking leads Finnish citizens into deep financial issues. According to Finnish commercial registries, more than 400,000 citizens have at least one credit warning that remains in the registry for two years. Even if the debt is being paid off. Declaring bankruptcy is not an option for Finnish citizens and his may lead to further issues.
How Can Consumers Protect Themselves?
Loan comparison tools in Finland grew in popularity over the past few years. This is one of the few ways in which credit consumers might be able to choose the lowest-interest player in the lending market. Such platforms corroborate the information from different lenders and are able to point out the lender with the lowest interest rate.
In Finnish citizen’s case, research and making informed financial decisions may be the only ways to reduce their financial vulnerability. Needing a loan is a natural part of one’s life and comparison platforms allow fast and accurate identification of the most affordable banking institutions and products.
When searching for similar platforms, consumers are encouraged to find impartial tools. Each lending institution’s profile should be based on independent user estimates and platforms should make objective, unbiased recommendations. Find platforms that offer study resources to help their users make better, informed decisions, as well as tips and tricks to identify the best banking solutions. Consumer credits don’t have to be high-interest, and using all the resources out there will help Finnish citizens when help is needed the most.
The banking market is growing in competitiveness. In the following years, we should witness better regulations and laws applied to the sector in Finland as well. FinTech enterprises penetrate the market progressively and offer far more competitive banking products. The banks in Finland will see themselves forced to also adopt better interest rates for their clients.
With a little help from the Finnish Government, the Finnish lender will soon know more financial stability, loan flexibility and predictability of their loans. Until then, banks gamble on massive advertising and marketing of consumer loans. Consumers are bombarded with billboards and online ads with the promise of a fast and easy (and affordable loan). Regardless, the general advice is to research lenders before applying for a consumer loan.