Rapid growth in interest rates on unsecured consumer loans

The interest rate on new unsecured loans has risen rapidly to more than 11 percent on average. Zolva’s Olli Jumeneff encourages consumers to be careful with their finances.

High inflation has reflected quickly in interest rates. The rise in interest rates can also be seen in unsecured consumer loans, in which loan portfolio in Finland is around 11 billion euros (February 2022, 11 billion euros). The unsecured loan portfolio of household consumer loans is about 8.5 billion (8.2), when loans related to the purchase of financing registered vehicles are removed from the figures.

According to Olli Jumeneff, Head of Sales of debt collection agency Zolva, the average interest rate on credit lines including credit cards and other unsecured consumer loans is currently around nine percent (6.6). Looking further down the line in the figures, the average interest rate on new consumer loans has already risen to 11 percent (8).

Jumeneff demands control from consumers in their consumption and personal economy. The danger is overindebtedness.

– Inflation drives up costs everywhere. The need for consumer loans increases if consumers do not have enough buffers in their personal economy.. The situation is also challenging for companies, as our latest CFO-Barometer shows. It is difficult for companies to pass on price increases in their entirety to customers, even though costs have risen significantly in a short time. It weakens profitability and affects employment rates, he says.

According to Asiakastieto, more than 365,000 (389,000) Finns have a payment defaults in their credit information, even though the amendment to the Credit Information Act that came into effect at the end of last year removed almost 20,000 people from the register.

Jumeneff predicts that the interest rate peak has not yet been seen.

– The European Central Bank’s increases in the reference interest rate do not alone explain the increase on unsecured consumer loan interest rates. Lenders also face cost pressures from elsewhere, and the rise in funding costs for lenders is greater than the rise in the reference interest rate. In that case, the costs cannot be transferred in their entirety to credit interests of consumer loans, he continues.

Legal changes to slow down overindebtedness

Unsecured consumer loans refer to loans for which no guarantee or other security has been given as collateral. Such loans are common, for example, in home renovations or home appliance purchases.

Several changes to the legislation are planned, the aim of which is to reduce over-indebtedness of consumers. They also affect the market for unsecured consumer loans.

Jumeneff says that the most significant measure in the fight against overindebtedness is a positive credit information register. Its utilization in lending will begin on April 1, 2024.

A positive credit information register means that all lenders are obliged to report the credits taken by the consumer to a common register maintained by the authority. Credit register data can be combined with income register data.

In the future, lenders will know how much credit the consumer has to various financial institutions and what his ability to pay is in relation to the amount of credit.

Jumeneff says that this increases transparency and helps responsible lending. I hope this means that the payment of previous credits with new credit will decrease, and through this, customers will have a better chance to settle their debts at the latest through collection or foreclosure, when the over-indebtedness can be stopped as early as possible.