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It is worth landing your long-term fixed loans now!

Long-term fixed-rate loans are becoming available at more and more banks: as the current base rate may remain in place until the end of 2017, mortgages are typically taken for several decades.

However, we cannot calculate our interest rate over this time period, but a fixed rate loan will allow us to calculate our installments throughout the term.

Short-term loans ( such as personal loans, consumer loans, and possibly higher commodity loans ) are worth floating interest rates, as the Daisy Bank announces that the current base rate will remain at the end of 2017 (1.35%). However, for long-term loans of 15-20 years, you should not even consider choosing a fixed installment . Although the base rate is low now (and it is reported to remain so), experience from the past 20 years shows that the current situation may change in the next few years. Fixed-term loans are a common product, but real security can come from fixed-term loans .

What about 10 year fixed rate loans?

What about 10 year fixed rate loans?

10-year loans are typically non-fixed interest rate loans, but due to the 10-year interest rate period they can also provide security . If you choose a fixed rate loan all the time, you may want to consider at most insurance coverage (such as unemployment or life insurance). However, for loans with a shorter interest rate period, it is worthwhile to start a home savings fund with a maturity equal to the interest period, so that you can prepay your loan at the interest rate turnaround. Then we can decide:

  • the installment is reduced or else
  • the maturity is reduced.

Of course, a combination of the two is also possible: with a shorter maturity, we choose a lower installment . Reducing the installment installment can be beneficial mainly if our monthly installment increases significantly after the interest rate turnaround.

A lot of people are affected not just the bar listers. Why is that? Because you may need a larger amount of freely available money that you do not necessarily want to use on the financier’s noseā€¦

Long-term fixed-rate loans are becoming available at more and more banks

As the current base rate may remain in place until the end of 2017, mortgages are typically taken for several decades. It can be said that so far in 2016, so far, the loans have been all about CSOK and home loans. However, a wide range would still need traditional free-to-use loans, especially when it comes to BAR listings.

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Law change for quick loans

Criticism of fast loans

Criticism of fast loans

The criticism of fast loans has been harsh since SMS loans entered the Swedish market in 2006. These criticisms have sometimes been exaggerated but sometimes also justified. Now, the fast-loan industry is facing a major change, which is primarily aimed at strengthening the security of borrowers. What does the new law mean and what changes can you as a borrower expect? They was going through the new fast loan law and what it brings into the high-cost credit market.

SMS loans are often referred to as the black sheep in the loan industry. Although there are aspects of fast loans that can rightly be criticized, however, much of the criticism is unjustified. The biggest argument for those who oppose these high-cost credits is usually the high effective interest rate.

Read more here to understand why the effective interest rate gives a misleading picture of the cost of a fast loan.

One argument, however, is justified is that some fast loan companies have previously been a little too generous in approving loan applications. This has meant that borrowers with low credit ratings, which sometimes have already been heavily indebted, still have their loan applications approved .

Borrowing with debt in itself does not have to be a negative thing, but you should always be aware of the stress that a loan creates on your finances, which should now be easier with the change of law.

To counteract this, the government earlier this year submitted a proposal for amendments to the Consumer Credit Act to create safer SMS loans and a safer market for you as a borrower. This proposal has now been approved by the Rigdaks and on September 1, the new law comes into force, which creates more security for borrowers.

bill

bill

On January 18, 2018, the Government submitted a bill to Parliament, Bill 2017/18: 72 . The main content of the bill was that the government proposed a more responsible market for high-cost loans and fast loans. By first and foremost introducing an interest rate ceiling and a cost ceiling for this type of credit, the government wanted to increase the security of borrowers.

Consumers who often apply for fast loans are also the group that is also at greater risk of encountering difficulties with repayment. If you, as a borrower, have less financial margins or have previously had difficulties with repayments , you probably belong to the group of consumers that the government wanted to help with its bill.

The bill contained a number of proposals for amendments to the Consumer Credit Act to give this risk group and also other borrowers better conditions for online credit. This change in the law would result in fewer people taking debt by feeling compelled to take these expensive quick loans.

The new law, which will now come into force on September 1, 2018 , sets the stage for the long investigative work that has been going on since April 2015. The law will protect people from over-indebtedness and also place high demands on fast-bank companies and their marketing.

The proposals

The proposals

Here is a brief description of the proposals submitted by the Government to Parliament. The most important, the bill, was approved on May 2, 2018 while the eight motions were rejected. That in itself is no loss, as the most important improvements to the law are presented in the bill.

The Government’s proposal

  • Bill 2017/18: 72 – Interest rate ceilings and other measures in the market for fast loans and other high-cost credits

What does the new law mean?

What does the new law mean?

With the new amendment to the Consumer Credit Act, several changes will be made at the end of the month. Among other things, a cost ceiling is introduced and also an interest rate ceiling on SMS loans and high cost credits. The requirement to alert borrowers about the risks of expensive loans is also tightened so that fewer people are over-indebted through these simple loans.

Claims on the marketing of these loans are also tightened in the new law. Consumer credit under this regulation must be moderate and must not be designed to attract people to hasty and unthinkable decisions.

In terms of cost, you as a consumer benefit from this change of law. The cost ceiling introduced means that a loan must not cost more than 40 percentage points above the reference rate. This reference rate corresponds to a repo rate of the year, and is decided by the government each year just before Christmas.

The reference rate does not include any fees that may apply for the loan, such as notification fees or setup fees . In other words, this interest rate is nominal.

Something that is also a central regulation of the law change is that a loan must never cost more than the double sum of the loan amount. This adjustment includes both the interest rate and the repayments on the loan.

New loan cost

The new cost ceiling will thus make that the total cost of your loan or high cost credit should never exceed 100% of the total loan amount . If you take out a loan of SEK 10,000, for example, you should never have to repay more than SEK 20,000 in total. This includes fees, interest rates and any collection fees and more.

Also worth noting is that this is only applied for high-cost credits. Therefore, if the loan has a lower effective interest rate than 30 percent , it will not be classified as high-cost credit and therefore not regulated by the new law change.

Thus, the cost of capital for private loans is not included in the change in the law and can therefore still have a capital cost that is significantly higher.

What loans are affected by the law change?

What loans are affected by the law change?

In other words, the new law applies only to fast loans, online loans and high-cost consumer loans. The criteria for this is that it should be a loan without collateral and have an effective interest rate of at least 30% in addition to the reference rate.

This means that other loans, such as mortgages, are not included in the law change. Nor are credit cards covered by the new legislation.

Disadvantages of the new law

Disadvantages of the new law

This upcoming law change has been known in detail since the decision was made on May 2 this year, but as the investigation has been going on for several years, it has been known that a change stood for the door. Because of this, several fast-loan companies have recently taken this step into account, which is a positive thing, of course. For you as a consumer, however, there is a risk of some minor disadvantages now that the law comes into force.

In the past, fast loans have been tightly regulated and therefore, among other things, have been very clear about going out with the total cost of the loan, which fees will be charged and such. Regardless of what you consider about sms loans and high cost credits, they fulfill a great function for the consumers who need to use them and borrow money quickly in unforeseen events.

Now that the lenders have raised their heads for the new law, in many places it has meant that several players have converted their fast loans to online loans . The disadvantage of this is precisely the fact that it becomes much more difficult to know in advance what a credit will cost in the end compared to a micro loan where you directly get the total cost of the loan presented to you.

Since Sweden is facing a choice of less than 2 weeks, it may of course be of interest to know where the various parties were on the issue of fast loans. Finally, here follows a brief summary of what the Rigdaks’s various parties thought of Bill 2017/2018: 72 “Interest rates and other measures in the market for fast loans and other high-cost credits” in their speeches.