The reasons for people seeking financial assistance are growing in today’s economy. Typically, loans are taken out to cover a deficit of funds by governments, corporations, and even small-scale businesses. As the market expands, banks have developed favorable retail loans that enable borrowers to meet their monetary demands, from paying for daily expenses and education to more significant purchases like cars and houses.
When applying for loans in Norway, the government has adopted new regulations in place since 2015 and came into effect just last January 2021. The details of the new lending regulation have been laid out in this article. These regulations have been set to limit the high interest and possible build-up of loan amounts for vulnerable households.
Being in a situation that will warrant you applying for a loan is stressful enough. The whole ordeal of growing through the entire process of the application should not have to be more daunting. Guided by these new regulations, here are the factors that are worth considering to win low-interest loans before sending in that application.
Credit Score and Credit History
Your credit standing is always the most crucial factor in your financial ventures. When banks or other financial institutions conduct a credit check, they first examine your credit score. It functions as a numerical representation of your creditworthiness and can break or make your application on its own.
The only way to improve a credit score is to do things the right way: paying bills on time, avoiding taking out too many loans, and regularly checking your financial statements for errors and inconsistencies.
Additionally, your credit history will also be rated. You will likely have a positive credit history when the records show you have religiously paid all your previous loans on time. The bank must feel confident in your payment behavior to be eligible for a low-interest loan.
One of the most significant determinants of your application’s approval is your income. Lenders use your income as a basis to evaluate your capability of managing the monthly payments. They will be assessing more than just your overall salary but also your job stability.
Before choosing the loan and terms to apply for, you must pre-assess to see which ones you will be most eligible for. Different loan types have significantly varying requirements regarding the borrower’s income.
Included in the lender’s background check is the applicant’s employment history. They study your track record, how often you change jobs, and even the trend of your salary change. This greatly influences the financial institution’s decision to trust your ability to pay for the loan within the agreed period and terms. Generally, they will prefer their debtors to have a long-term and steady employment record over someone with a vast list of jobs in the course of just a few years.
Debt-To-Income Ratio and Debt-Serving Ability
Popularly known as DTI, the Debt-To-Income Ratio measures how much your income goes toward paying off debt each month. Most financial institutions would favor a low DTI of under 40% to receive low-interest loans.
On the other hand, the new regulations have stipulated that a borrower’s total debt should be capped at 500% of their gross annual income. This means the total amount cannot exceed five times more of their income, including their savings in their BSUs or other non-taxed income streams.
While income is still necessary with the new regulation, they will also assess your debt-serving ability concerning your DTI. This assessment, called Debt-Serving Ability, means that your ability to pay off the loan will be judged based on the total debt and all relevant expenses versus your income.
The regulation mandates that the lender must make an allowance for an interest rate increase of 5%. If your income falls short of covering your regular expenses and debt with the interest rate hike, the loan will be subject to the lender’s flexibility quota, which for consumer loans is at 5%. Otherwise, the bank or any lender will be obliged to deny your application.
Getting the Best Rates for Consumer Loan
Qualifying for a consumer loan is one step out of the hurdle, and getting the best rates requires way beyond the factors mentioned above. While the four factors are the most crucial to score a high rate on, several other strategies can be done to get you the financial aid you need with the least of sacrifices.
- Consider your purpose for the loan. You can be granted low interest rates depending on what you will be using your loan for, as long as it is for your personal use. For longer payment periods, such as a mortgage or student loan, the rate typically comes in higher and is usually assessed favorably when backed by collateral.
- Read the fine print. Before you seal the deal on a loan that will be taken out as an expense on your monthly income, make sure you read the terms and conditions from top to bottom. Ask questions to the bank representative if necessary and ensure that the terms set are reasonable and agreeable with your current situation.
- Check and backtrack for additional fees. While some banks offer you low interest rates, they usually recover it with additional fees, such as origination fees, late payment fees, prepayment fees, and others.
- Shop around for the best rates. Compare interest rates, fees, and repayment terms from different financial institutions. Get quotes from various banks and find the best deal that works for you. You can also refer to this link: forbrukslånlavrente.com/ for a more comprehensive list of current consumer loans from different lenders and their deals.
- Negotiate. Don’t be afraid to try negotiating your terms with the bank. The worst they can say is no.
General Information for Consumer Loans
While the terms and conditions vary with different banks or lending companies, some information applies to every financial institution that you can also use for your reference.
- Banks in Norway typically grants loanable amount between NOK 25,000 and up to NOK 500,000
- A consumer loan typically comes with an interest rate of 7.4% to 33.3%, depending on your credit history, existing bank offers, and payment period.
- Consumer loans are unsecured loans, meaning the bank does not need any collateral to grant you your expected amount. However, the decision will be heavily based on your creditworthiness.
- Repayment of consumer loan installments can be spread over a maximum of 5 years.
- You will not be eligible for a consumer loan in any bank if you have a Norway-registered inkasso ( debt collection system)
Applying for a low-interest loan in Norway looks simple enough for debtors, but several factors are at play behind the scenes. It is essential to understand the complexities at play with your eligibility, such as your credit score, income, employment history, or debt-to-income ratio. By improving these qualifications and meticulously following the application process, you can increase your chances and even get favorable rates.
Remember that reading always wins you better knowledge, and with enough information, you can get yourself ahead of these financial institutions. With the right blend of highly rated credit history and comprehensive research, you are on the way to getting the financial aid you need to reach your life goals.