New figures from Norwegian Debt Information show that consumer debt is still shrinking in Norway. At the same time, the number of non-performing loans is increasing. In addition to the fact that there are many who should not take out this type of loan, there are undeniably many who have borrowed too expensive. The latter is probably due to the fact that it can be difficult to understand how the banks calculate the interest rate offers, and not least how the more than 30 niche banks compete with each other.
Large differences in interest rates
If you are first going to borrow money without providing collateral, it is about doing and finding the best deals. A consumer loan will always be more expensive than, among other things, mortgages and car loans. The reason is first and foremost that consumer loans do not require security. The banks simply compensate with higher interest rates as a counterweight to the increased risk they take when they do not have collateral.
At the same time, there are large differences in the terms you can get on the unsecured loans. The most extreme examples are so-called microloans, ie loans of a few thousand kroner that are expected to be repaid in just a few weeks or months. These loans can have effective annual interest rates of several hundred percent. At the other end of the scale, you will find consumer loans that can have effective interest rates as low as about 7%.
The significance of the credit score on a consumer loan
Unfortunately, not everyone gets the lowest interest rates on unsecured consumer loans, as long as they find the right bank. Almost all of the more than 30 niche banks in Norway determine the interest conditions on the basis of a comprehensive assessment of each individual applicant. In short, this means that those applicants who have a high credit score get the best interest rate offers.
The credit score is a calculation of the risk the banks take when they lend you money. For example, if you have a lot of debt, unstable income, and at the same time are young, the score will be low. This in turn means that you probably do not get particularly good interest rate offers when you apply for a loan.
Also important when applying for other funding
It is not only the interest rates on consumer loans that are affected by the credit score, but also loans for, for example, cars and homes. Therefore, it pays to familiarize yourself with what affects the score, and then work to improve one's own score. This naturally takes time, partly because age and payment history have a big impact.
It is nevertheless possible to take measures that have an impact in the short term. For example, the number of creditors could play a role. People with many small loans and credits will have a quick effect by accumulating this type of debt. Another move is to get rid of credit cards, and especially if you have several. The credit limit in these cards is considered a debt when the banks assess you, even if you do not owe the credit company money.
Typical interest rates on consumer loans
It is common for banks to offer interest rates on consumer loans that are between 7% and 20%, if we disregard the players who only offer the mentioned microloans. The differences in relation to credit scores are what make up the most important difference between the two extremes.
The interest rate offers may therefore look something like this if you apply to the most competitive banks:
- Person with low credit score – interest rates between 14% and 20%.
- Person with an average credit score – interest rates between 10% and 15%.
- Person with a high credit score – interest rates between 7% and 10%.
In addition to the credit score, the loan amount will also play a role in the terms. Small loans will usually have slightly higher interest rates than large loans. For example, you will hardly get effective interest rates of 7% if you borrow NOK 30 even if you have a very high credit score, but you will still get better terms than an applicant with a low score.
Important to compare offers
The interest terms described here can be found at approximately 20 niche banks that offer consumer loans up to NOK 500. Among these, there will also be differences, in the same way as there are differences in the interest rate offers you will receive if you apply for a mortgage from both Nordea and DNB. In other words, comparing is important if you are going to find the loan that costs the least.
The challenge for many is to know where Døkonomie will collect the offers. Most people hardly know more than a couple of the names of the banks that operate in this market and often the big ones Bank Norwegian and Sbanken. One of the solutions is to use so-called comparison sites that you find online, such as consumables.com. There you will usually find all key figures for interest conditions and loan sizes, as well as information about the bank's requirements for the applicant.
Loan example: NOK 65.000. o / 5 years: Effective interest rate 16,33%. Cost SEK 28.244. Total SEK 93.244.
Avoid high consumer debt over a long period of time
Although there are relatively inexpensive consumer loans, this type of financing will almost always be more expensive than most other loans people take out. There is therefore a clear connection between payment problems and consumer debt. It is worst for those who have both unsecured loans and debts from credit cards and installment plans.
High consumer debt can cost a lot of money, and it always pays to pay back quickly once you have this type of loan. Also, be careful not to have multiple loans at the same time.