Digitization, new technologies, evolving regulations, and increasing globalization are opening up opportunities for new players and business models in both lending and financial services more broadly.
From where do Finnish consumers get their loans from?
Finnish consumers can obtain loans or kulutusluotot, as they say, from various sources, including:
- Banks: Traditional banks in Finland offer a wide range of loan products, including personal loans, mortgages, and credit cards.
- Online and Digital Lenders: Digital banks and online lending platforms have gained popularity in Finland. These lenders often offer quick and convenient access to various types of loans, including unsecured consumer loans.
- Credit Unions: Finnish credit unions, known as “osuuspankki” or OP banks, provide financial services to their members, including loans.
- Peer-to-Peer Lending: Peer-to-peer lending platforms connect individual lenders with borrowers. This allows consumers to borrow money directly from individuals or investors.
- Retail Stores: Some retail stores and businesses in Finland offer in-store financing options, such as installment plans or store credit, for their products and services.
- Finance Companies: There are finance companies that specialize in offering consumer loans and financing solutions.
Government Programs: In certain cases, Finnish consumers may be eligible for government-backed loans or subsidies for specific purposes, such as education or home renovation. - Mortgage Companies: For housing-related loans, consumers can approach mortgage companies that specialize in providing mortgages and home loans.
- Credit Cards: Many Finnish consumers use credit cards for short-term financing, and credit card companies offer credit card loans with varying terms and interest rates.
- Cooperative Banks: Cooperative banks, such as S-Bank and local cooperative banks, also offer a range of banking services, including loans, to their members.
Role of banks in Finland
The role of banks and financial institutions primarily operating digitally has grown in the 2010s in the Finnish consumer and business loan markets, and the growth rate has indeed been rapid. Especially in the case of consumer loans, digital banks have challenged traditional brick-and-mortar banks, and a significant portion of the growing popularity of consumer loans has come from the customer base of digital credit institutions.
By the autumn of 2020, the amount of consumer loans was nearly 17 billion euros, of which, according to experts at credit-10.fi, a 1.2 billion euro portion was comprised of unsecured consumer loans issued by digital credit institutions.
Changes from 2020 to 2022
n October 2021, Finnish individuals borrowed unsecured consumer loans from domestic financial institutions worth 320 million euros, which is five percent more than the previous month. However, compared to October of the previous year, households borrowed unsecured consumer loans even more, up to 15.5 percent. These figures had been higher only the previous summer, in July 2020, when consumer loans were borrowed more within a single month.
In May 2022, the amount of consumer loans borrowed by Finnish households increased again by 15 percent compared to the previous year. This 368 million euros represented the highest amount ever borrowed within a single month. Consumer loans granted by financial institutions operating specifically in Finland accounted for 69 percent of all household consumer loans in 2022, just as they did at the end of the previous year.
Average Interest Rates on Consumer Loans
There has been some variation in the average interest rates on unsecured consumer loans. The temporary interest rate cap on consumer loans expired in September 2021, after which the average interest rate on unsecured consumer loans increased somewhat compared to the period before the cap. In June 2020, the average interest rate was 6.19 percent, whereas in October 2021, it was 6.72 percent. The cap in place was ten percent, and the increase in the average interest rate remained moderate thereafter.
During the last quarter of 2021, the average interest rate on new consumer loans had risen to eight percent, with unsecured consumer loans obtained from small loan companies having an average interest rate of over 16 percent. Consumer loan interest rates fluctuate, but despite inflation, the changes within 2022 have been relatively small. In April, the average interest rate on new unsecured consumer loans decreased somewhat, and by May, it was at 8.2 percent. Unsecured loans tend to use fixed and other reference interest rates more than other household loans.