In the wake of the European Central Bank raising interest rates, it comes as no surprise that Finland is adopting several new laws to change the Finnish loan market to some extent.
These changes are created mainly to support consumers and reduce their risks or uncertainty during times when the global economy is on the brink of a crisis.
The main changes introduced are social credits, a lower interest rate cap on consumer loans, and a positive credit information register.
Finnish Social Credit Program to Support Low-Income Households
Low income and debt may create financial insecurity and issues with securing housing. This is where the Finnish social credit comes into play. Social credit is granted to people who can’t get loans from anywhere else or may already be in debt.
Regardless of payment defaults, social credit can be granted to, for example, help purchase a home or consolidate previous loans to get rid of debt.
Due to the sensitive nature of the social credit, it’s obviously not granted to everyone. Responsible authorities in local municipalities can decide to whom the loan can be granted. However, it functions similar to a last-resort scenario: those who’ve run out of options or have ended up in a dire financial situation may find help from social credit.
Lower Interest Rate Cap
Compared to other European countries, Finnish consumer loan interest rates are rather reasonable even now. That’s partially due to interest rate cap that was introduced in September 2019. At that time, the maximum interest rate was set to 20%.
During the pandemic, interest rate cap was lowered to a maximum of 10%, which was in effect up to September 2021. In a way, this already prepped lenders for a lower interest rate.
As one Finnish loan comparison website suggests, unsecured consumer loan interest rates still range from 4% to 20% even today. Naturally, the lower end is granted to people with a more stable financial situation, but consumer credit interest rates can still range between 10% to 15%.
After several months of consideration, the Finnish government came out with a proposal to apply a new, lower interest rate ceiling. The proposal was accepted and confirmed in March 2023 and the new law will enter into force from the 1st of October 2023.
According to the updated law, the maximum interest rate on consumer loans, credit cards and installment agreements can be up to 15%.
This change means cheaper consumer loans that may lessen the burden for consumers who can now take out credit with lower payments due to the lower interest rate. Smaller financial burden may also increase purchasing power, though it remains to be seen how this change affects credit card purchases in stores as these will also be affected by the interest rate cap.
Positive Credit Information Register
Perhaps one of the most impactful changes is the positive credit information register which was already accepted in 2022. However, the register will be finally implemented on the 1st of April, 2024.
This register will become an integral part of the Finnish lending market and can be used as a tool that will allow lenders to find information about people from one place. This central register will create a safer lending space as lenders will have access to more accurate information before they accept any loan applications.
The positive credit register will include information such as loans already taken out by the person, the applicant’s income situation, any credit bans, and other information.
On top of everything else, the register will cover information on any payment delays and more specific information on issued loans (including loan amount, purpose of credit, interest charged, etc).
The rising Euribor is creating uncertainty in all European countries and Finland isn’t any different. The uncertain economic situation demands some changes in local lending rules and that’s largely why Finland has started adopting new rules to create a safer lending space for consumers.
The main goal of these and any possible upcoming changes during autumn 2023 and spring 2023 are designed to prevent households from going into debt and maintain their purchasing power.
The aforementioned laws and changes will come into force over the next 12 months, but their real effect will most likely be seen within the next couple of years. Though these changes may decrease lending activity due to tougher restrictions, it may also benefit Finnish consumers who may not go into default that easily.