Accelerated or One-Time Loan Repayment
Many lenders in Finland offer the option to repay the loan at any time. Regardless of the repayment period that the borrower has agreed to, they are always entitled to repay the loan at once if they wish. This rule is defined by Finnish law.
Even if the loan terms do not mention anything about extra repayments or repayment of the loan at once, there is always the possibility.
However, an exception exists. This applies to a fixed-rate mortgage or an unsecured loan. Moreover, fixed-rate loan repayment (kiinteäkorkoinen laina takaisinmaksu) in one installment or making additional loan repayments can incur additional costs. This is often known as the “waiver fees.”
Faster Payment Schedules
A faster payment schedule requires an amendment to the original loan agreement. Moreover, the lender is entitled to be reimbursed for the costs incurred in granting the loan. In variable rate loans, such as card, flexible, and consumer loans, past repayment does not usually give rise to specific measures. Therefore, it does not give rise to these waiver fees.
In additional loan repayments, savings are accrued by avoiding interest costs and account management costs. The shorter the final loan period, the lower the cost of the loan to the consumer.
Main Ways of Loan Repayment
There are practically two different ways to repay the loan. First, you can increase the monthly installment to be paid. This will naturally lead to a shorter loan period.
Another way is to make additional repayments directly to the loan principal, thereby reducing the loan term and the total cost of the loan.
On the other hand, you can also pay the installments off in advance, allowing you to buy yourself free time. But, of course, this does not shorten the actual loan period.
If you have multiple loans, one way to save on borrowing costs is to combine loans. In this way, it may be possible to save on both interest and account management costs, even if higher monthly installments are not possible.
If the loans cannot be combined, it is advisable to allocate any additional repayments to the loan with the highest interest rate. You can also apply for a combination loan through various lenders in Finland.
Fixed and Variable Rate Loan
One of the most significant considerations for loan applicants is whether to opt for a fixed-rate loan or a variable-rate loan. An unequivocal answer cannot be given. If market interest rates remain low in the long run, a variable rate loan may become cheaper.
In the case of rising interest rates, a fixed-rate loan may again become cheaper than a loan tied to the market rate.
Interest Rate Cap 2020
The interest rate cap has risen to the headlines with the corona epidemic. According to the Government’s proposal, an interest rate cap of 10% has been set for consumer loans until the end of 2020.
However, it is good to note that certain loans, the commodity-linked loans, have been excluded from this temporary interest rate cap. These include card and car loans, etc.
The interest rate cap is often sold in connection with larger loans, such as mortgages, as a separate insurance product.
In this way, the borrower can hedge against significant increases in fluctuating market interest rates. However, for small consumer loans, it is seldom possible or even sensible to obtain an interest rate cap.