Loan Interest Rate Cap in Finland: Strengthening Consumer Protection 

 September 14, 2023

The loan interest rate cap has been a significant topic of discussion and legislation in Finland. Its purpose is to protect consumers from the problems caused by high interest rates and prevent the emergence of debt spirals. Finland has made several changes to the interest rate cap over the years, and it has been an important part of consumer protection.

History of the Interest Rate Cap

Finland’s interest rate cap is not a new concept. It was first introduced in 2013 when the Consumer Protection Act was amended to limit loan interest rates. This was in response to concerns that high-interest payday loans were causing problems for many Finns. Initially, the interest rate cap was set at 50 percent of the loan amount, but it was later reduced to 20 percent in 2019.

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The interest rate cap has been considered a successful measure in many ways. It has helped reduce debt problems and protected consumers from very high costs. Additionally, it has brought more transparency to the loan market, as lenders are now required to clearly and comprehensibly disclose interest rates.

Current Status of the Interest Rate Cap

Currently, in Finland, the interest rate cap is 20 percent of the loan amount, including all costs such as interest, fees, and other charges. This means that the total cost of the loan should not exceed 20 percent of the loan amount. For example, on a 1000 euro loan, the interest and fees should not exceed 200 euros per year.

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The interest rate cap applies to all consumer loans, including payday loans, revolving credit, and consumer loans. However, it does not apply to mortgage loans or other large loans not intended for consumption.

Loan Comparison Websites in Finland: Money-Saving Solution for Consumers

Loan comparison websitesm or lainan kilpailutus sivustot as they say in Finland, have gained popularity in Finland, providing consumers with an efficient way to search for and compare loan offers from various lenders. These websites have brought transparency and competition to the loan market, benefiting consumers by helping them save money and choose the best loan terms.

How Loan Comparison Websites Work

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Loan comparison websites operate simply and efficiently. The consumer enters the necessary information, such as the loan amount, loan duration, and other loan-related details on the website. The site then compares this information with offers from different lenders and provides the consumer with a list of potential loan options.

This enables loan applicants to compare interest rates, costs, and other terms of different loans all at once. The consumer can then choose the loan that best suits their needs and budget.

Benefits of Loan Comparison

Loan comparison websites offer several advantages to Finnish consumers:

  1. Savings: By comparing loans, consumers can find the most affordable offers, potentially saving significant amounts of money on interest and other costs.
  2. Speed and Ease: These websites make loan comparison quick and easy. Filling out an application and comparing offers can be done in a matter of minutes.
  3. Transparency: Loan comparison websites provide clear information about the terms of various loans, helping consumers make informed decisions.
  4. Versatility: Most websites compare different types of loans, such as consumer loans, revolving credit, and payday loans, allowing consumers to find suitable loans for various needs.
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Criticism and Debate

While the interest rate cap has been a positive measure in many ways, it has not been without criticism. Some argue that it may limit access to loans for those in urgent need of financing who have no other options. Additionally, some lenders have ceased operations or shifted to offering other types of loans due to the interest rate cap.

There is also debate about its effectiveness and whether it should be further tightened. Some countries have introduced even stricter restrictions, such as Sweden, where the interest rate cap is 40 percent, and Denmark, where it is 35 percent. In Finland, there is on going discussion about whether the interest rate cap should be similarly tightened.

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Conclusion

Finland’s loan interest rate cap has been a significant tool for consumer protection. It has helped prevent the emergence of debt spirals and reduced consumer exposure to high costs. While there is still ongoing debate about its effectiveness and strictness, it has proven to be an important part of Finnish legislation.

 

Regardless of the interest rate cap, it is essential for consumers to make informed decisions when taking out loans and carefully research different options before making a decision.

 

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