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Have you recently considered applying for a personal loan? While these loans provide a solution for many financial problems, individuals should always consider the fees, costs, and terms linked to them.
Apart from paying interest, borrowers are expected to pay various fees, some of which are paid monthly, while others are only paid once. There are multiple requirements in view of age, income, payment history, and nationality. Special services like a grace period are available to borrowers too.
We hope the information below introduces you to the fees, costs, and terms of personal loans in Norway.
Interest rate types
Individuals applying for consumer loans should differentiate nominal from effective interest rates. The former refers to the sum you pay to borrow the money, excluding the fees required by banks for administrative work. The latter refers to the nominal rate in addition to all fees. Consequently, it represents the actual loan cost.
Applicants are bound to make mistakes, as nominal interest rates tend to be misleading. Let’s assume you are applying for a loan of 30,000 kroner with a nominal rate of 15 % and a repayment period of twelve months. The monthly installment would cost 2,500 kroner by only paying for the interest and not being charged for other fees. Nevertheless, the bank will also charge you a term fee of about 75 kroner, which increases the cost.
Lenders have a tendency to offer different nominal interest rates to clients, ranging between 5 and 20 percent. In contrast, the best current effective interest rates are 5.11%. The influence of effective interest rates on forbrukslån or consumer loans is greater on smaller loans. For example, the effective interest on a loan of 30,000 kroner is 20.77%, whereas on a sum of 300,000 kroner is 11.45%. It also depends on how long the period of repayment is.
It’s of the utmost importance for borrowers to gain a good understanding of the different types of fees to avoid surprises. The establishment fee is only paid once when the loan is created. The largest part of lenders requires either 900 or 950 kroner from applicants. Nevertheless, some lenders make exceptions in cases where the loan amount is low by reducing the fee by half. Certain banks even eliminate it completely for refinancing loans.
The term fee, on the other hand, must be paid each month to cover the monthly administrative costs of the bank. Banks whose term fees are high tend to have the costliest consumer loans. Reasonable term fees range from 30 to 40 kroner, while expensive ones start from 75 and reach 200 kroner. Anyhow, regardless of how low these amounts may seem, they usually become large sums when the period of repayment is long.
For example, if your repayment period is over five years, you will have to pay the term fee at least sixty times. Another cost to be aware of is the invoicing fee, which isn’t usually charged by most banks, as borrowers mainly receive invoices via email. However, you should check whether there is one prior to signing the contract. If shopping for credit loans, you must consider the possibility of paying a withdrawal or transfer fee.
As far as hidden costs are concerned, there are usually no such costs on consumer loans. Sometimes, it’s possible for borrowers to incur a special fee by asking for a specific service like applying for a grace period. Borrowers should know that they will be obliged to pay a reminder fee if they are late in paying the invoice. Check out the following definition of late payment.
Every person planning to take out a personal loan should be familiar with the age requirements of lenders. In Norway, anyone of legal age can apply for a personal loan. Anyhow, not all banks are interested in lending to 18-year olds. Lenders usually prefer for applicants to have a certain payment history, which sets the age limit a bit higher.
Additionally, age requirements can be low, common, or strict. The lowest requirements are set by only a few banks, setting 18 years as the lowest age limit. Common requirements are set by most banks, approving loans only to applicants between 21 and 23 years. The strictest age requirements are only imposed by a few banks, which oblige applicants to be at least 25 years old.
Nevertheless, the age factor is not as important as the other factors. Many banks provide personal loans to applicants who fail to meet the age requirement just because the applicant is thought to be a secure payer. For instance, a person of 21 applying for a personal loan at a bank with an age requirement of 23 might be considered eligible if his/her income is stable, has little to no debt, and applies to a low amount.
Banks have not only a lower age limit but an upper age limit as well. The usual upper limit is seventy years. Exceptions are practiced in this case too, but older applicants don’t usually get a long repayment period.
Payment history requirements
Another type of requirement imposed by banks is the payment history requirement. Every person of legal age who is financially active has a payment history. It means paying bills and installments on loans and credits. People who are consistently late with their payments are classified as less reliable payers. Rejection is common in active debt collection cases and cases of payment remarks.
Some banks still give loans even if applicants have debt collection cases, but it all depends on the seriousness of the case. Usually, the provided loan must be used to refinance the debt linked to the debt collection case. Conversely, payment remarks are believed to be more serious, which is why exceptions are rarely made. See this link, https://www.investopedia.com/articles/personal-finance/121514/how-debt-collection-agency-business-works.asp, to get to know the work of a debt collection agency.
Getting a personal loan from a Norwegian bank is possible if you are a Norwegian citizen or at least a resident and taxable person in the country. Candidates of foreign origin must have lived in Norway for a minimum of three years. Those who aren’t Norwegian citizens should state their D-number in the application.
Norwegian banks are expected to comply with the Financial Contracts Act and guidelines. There are new lending practices for mortgages and consumer loans. The imposed rules involve operating ability and debt ratio. The bank has to be sure that the borrower is capable of servicing the loan and tolerating a potential interest rate increase of five percent.
According to the debt ratio rule, banks cannot give loans to applicants whose total debt is five times greater than their annual earnings. There are two lending regulations applying specifically to personal loans. Firstly, the loan is supposed to have fixed monthly installments, while the repayment period shouldn’t be longer than five years. The only deviation from these requirements is when using a loan for the purpose of refinancing.
Since we already mentioned the term grace period above, it’s time to explain it a bit further. Getting a grace period on a personal loan is the best solution if income fails. However, such a solution can be costly, meaning you should avoid the scheme if at all possible. During a grace period, borrowers pay only for interest and fees, not the installment.
Being granted a grace period is feasible if you have been paying installments for a while, such as at least six months, during which you have proven to be a reliable payer. The duration of a grace period varies across banks, between one and three months. There are certain restrictions to the number of times you can be granted such a service, usually just once.
An alternative to a grace period would be extending the repayment term. If your repayment plan is not five years already, you can easily extend it. By extending the plan, there will be more installments whose size is going to be reduced. Bear in mind that the total costs will get higher. Therefore, you should perform some calculations if extending the period by many installments. Perhaps, the overall costs of the grace period alternative will be higher than the grace period itself.
To sum up
Make sure you get informed about all fees and requirements beforehand.
It’s essential to know all details about your repayment plan and terms!
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