The increase in unsecured consumer credit from the Bank of Finland is attributable to the fall in interest rates. In 2016, interest rates on unsecured consumer loans fell by almost one percentage point. In March this year, the average interest rate on unsecured consumer loans was 4.97% and that on collateralised loans was 3.01%, according to Bank of Finland statistics.
Loan periods have also been extended
In addition to the amount of loans, the loan periods have also been extended. The average repayment period for unsecured consumer loans taken in January-March 2017 is 12 years and 8 months. Last year the loan terms were shorter than five months (12 years, 3 months). In 2011, the average maturity of unsecured consumer loans was only 7 years and 9 months.
Foreign players are taking over the loan market
The growing demand for consumer credit is also reflected in the inflow of foreign loan providers to the Finnish loan market alongside traditional banks. The latest entrants to the Finnish financial market are Bank Norwegian (2016) and Good Finance (2017).
Traditional banks have lower interest rates on unsecured consumer loans than other banks, but traditional banks only lend to their own customers. Financial institutions, on the other hand, grant larger consumer loans than traditional banks; currently at eg Norwegian Bank, Good Finance and Good Lender offer up to € 50,000 of unsecured credit. In traditional banks, only an unsecured consumer credit of more than EUR 25,000 can be obtained from Goodbank.
Loan market is their low financing costs
The advantage of traditional Finnish banks in the loan market is their low financing costs, reliable reputation and huge amount of customer information. However, banks have not succeeded in keeping their products, processes and marketing up to date, but new, completely digital, players have succeeded in taking significant business away from traditional banks by gaining an increasing foothold in the market for unsecured consumer credit. More and more Finns are opting to take out loans outside their own bank.