New interest rate ceiling for consumer loans in Finland

4On September 1, Finland introduced a new interest rate cap of 20% for all consumer loans in order to reduce its indebtedness in the country. In addition, no consumer loans may have fees exceeding USD 150 per year.

These rules do not only apply to fast loans, sms loans, and other high-cost credits but also apply to credit cards, car loans, renovation loans, and installments. If you wish, you can check out the new rules in their entirety on the website of the Finnish Parliament.

Since even Swedish authorities and politicians probably observe this and may follow (if it gives a good result in Finland), we at Good Finance think it may be interesting to look more closely at what is happening there.

In Sweden, an interesting ceiling was also introduced (of about 40%) and then Finland was one of the role models, so if an even lower interest rate yields a very positive result, perhaps it will happen in Sweden as well.

Finland’s previous interest rate ceiling


Already in 2013, Finland introduced an interest rate ceiling for loans that were less than USD 2,000, but this did not reduce debt in Finland. No, it is rather that the indebtedness in Finland continued to increase, both in terms of mortgages and consumer loans.

After the interest rate ceiling was introduced in Finland, many small quick loans were converted to larger loans with longer repayment periods, and this meant that many who previously took smaller loans chose to take larger loans instead.

In addition, loans of USD 2000 or more were not covered by the interest rate ceiling and this resulted in the indebtedness taking on greater debt than before. The new rules

This is how Finns and credit companies are affected


Thus, the interest rate ceiling from 2013 did not produce the positive effect that the Finnish state had hoped for and therefore they have now taken another step in the hope that it will produce a positive result.

Prior to the new interest rate ceiling, several lenders of fast loans and sms loans announced that they would cut down on their business due to the interest rate ceiling, or alternatively close it down altogether.

Just a few days after the introduction, however, most lenders seem to roll on as usual but with altered interest rates of course, and some have made some changes with their products.

More payment notes – in the beginning


Of course, it will take time before you can see if the new interest rate ceiling will have a positive effect or not, but you can always hope.

Sean Cole of the Guarantee Foundation (who helps indebted people in Finland) tells Finnish YLE that the new rules will initially make more people receive payment notes because it will be more difficult for people with poor finances to take a quick loan to manage to pay their bills.

However, Cole believes that it is only good that people receive a payment note at an earlier stage than they borrow money to pay their bills, which only leads to a debt spiral.

Larger fast loans and longer payback times

Larger fast loans and longer payback times

However, there is also a risk with the new interest rate ceiling and it is that more and more fast loans and sms loans will be larger (which, for example, Good Finance in Finland has flagged for) and this, in turn, can cause people to be tempted to take bigger loans than they need to.

Jessica Brown, at the Good Finance Information Corporation, also believes that there is a risk to this and therefore thinks that it would make sense to impose a cost ceiling just like we have in Sweden.

The Swedish cost ceiling means that a high-cost credit must never cost more than the size of the loan itself, including interest and recovery costs.

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