These expenses might vary across banks, which makes the loan shopping process imperative for borrowers. If having second doubts about the credit you have chosen, borrowers can practice the right of withdrawal and eliminate some of the fees.
The following info will teach you the most important facts about consumer loan expenses.
Nominal vs. effective interest rates
Prior to discussing consumer loan costs and fees, you need to understand the difference between nominal and effective interest. The former is the amount paid for borrowing the money, while the latter is the nominal interest plus all the fees. For instance, if the credit amount is NOK 30,000, the nominal interest is 15%, and the repayment period is twelve months, you’ll pay 2,500 kroner per month.
Nevertheless, if the bank also charges an establishment fee of 950 kroner and a termfee of NOK 75, the monthly sum will cost approximately NOK 4,350. It means the effective interest has doubled to thirty percent. The most common nominal interest rates offered by banks are between five and twenty percent, whereas the best effective rates on these loans are 5.11%.
What is the effect of fees on small and large sums?
The effect of fees on the effective interest is higher on small than large loans. By comparing three loans with the same conditions but of different sizes, you will best see the effect these expenses have on the rate of effective interest. Read here about the differences between nominal and effective interest rates.
By borrowing 30,000 kroner with the nominal interest of 10%, establishment fee of NOK 950, and a term fee of NOK 40, the effective rate is 20.77%. The same conditions on a sum of 100,000 kroner reduce the effective interest to 13.43%. An amount of 300,000 kroner has an effective interest rate of 11.45%. The higher the sum, the more expensive the effective rate.
Types of fees
The establishment cost is paid just once when the loan is created. Most banks require either 900 or 950 kroner, with a few exceptions. Some banks split the start-up fee in half if the loan sum is low, whereas other banks eliminate it in refinancing cases. Several banks require from 400 to 1,500 kroner, based on how much one borrows.
In contrast, the term cost is supposed to be paid every month, as it covers the administrative costs of banks per month. The price differences between banks are large, both reasonable and overtly expensive. Reasonable term expenses range from thirty to forty kroner, while expensive ones from NOK 75 to 200.
The most important aspect to consider in relation to term fees is that even small sums can turn into large when the repayment plan is long. For example, if your repayment plan consists of sixty installments, the term expenses will be paid as many as sixty times over five years.
In view of an invoice fee, most banks don’t charge one, as they send invoices to their clients by email, meaning there are no administrative expenses to charge for. Anyhow, you should check before accepting the agreement whether the bank is among the few ones that require an invoice cost. If so, the probability of offering expensive loans is high.
While these are the most usual costs on unsecured loans, there are some other less common expenses for borrowers to consider. Lenders might charge a withdrawal or transfer fee on credit loans or charge special expenses when applying for a grace period or deferred payments.
The right of withdrawal
Borrowers have the right to cancel consumer loans by exercising the right of withdrawal. There are various websites about loans and finance, such as mitt Forbrukslån, which educate visitors on different aspects of consumer credit. By practicing the right of withdrawal, you’ll be reimbursed the establishment and term fee.
Borrowers are provided with a fourteen-day right of withdrawal, as stipulated by Norwegian law in the Right of Withdrawal Act. People can regret the purchase of a service or product when shopping for something online. The same is valid for financial services purchased online.
The original purpose behind the Right of Withdrawal Act is the role it plays in safeguarding consumer rights against professional organizations like financial institutions. It applies to consumer loans obtained through distance selling and for agreements made over the internet, by phone, via text messages, etc.
In order for individuals to use the right of withdrawal, they must send a written message to the financial institution or the bank from which they borrowed the money from. Usually, individuals send an e-mail to their contact person and announce that they regret the agreement. The other way to express your regret is through submitting a right of withdrawal form.
Despite the communication method you choose, you should make a copy of all correspondence with the lending institution. If any disagreements or ambiguities arise afterward, you’ll have proof that you have complied with the deadline. The period for the right of withdrawal to apply is from the moment of receiving the money and the following fourteen days.
In case more than fourteen days pass, the agreement becomes binding. If you wish not to keep the loan, you can repay it, but you must pay the establishment and accumulated term fees as well. Borrowers have the chance to wait up thirty days before paying back everything they owe.
As per the act, borrowers have thirty days to repay the outstanding balance, including the two weeks from the withdrawal period. Unless you have paid everything back by that time, it will be considered that you have waived the right to regret.
Never sign an agreement unless you are clear about the costs.
Some of the expenses are paid only once, whereas others are paid during the entire payment schedule.