Costs of credit

There can be big differences between consumer credit costs. Read more about what they include and how to compare them.

Why is it worth comparing credit costs?

When searching for a suitable loan or consumer credit, it is important to pay attention to credit costs. Because credit costs can vary significantly between lenders and credit products, you should always compare them.

Before applying for credit:

Explore different loan alternatives and their purposes
Estimate the size of loan you need, and the repayment period
Clarify the true costs of the credit

Costs of consumer credit

Credit costs are the key element of consumer credit. What the costs include depends on whether the credit is unsecured consumer credit or a secured bank loan.

Costs of unsecured consumer credit

The final costs of unsecured OP Tailored Consumer Credit include interest and a loan servicing fee in addition to the borrowed amount. The loan servicing fee is charged each month, even if the credit was not in active use.

The costs of OP Tailored Consumer Credit include:

Loan servicing fee, 6 euros/month
Personal interest rate, a 3.5–10.95 % margin + a 3-month Euribor

Pricing models for unsecured consumer credit

When comparing unsecured loans, you may notice that a wide range of pricing models are used. In some cases, the price of unsecured credit may depend on the amount borrowed, or whether you mainly bank with the lender. The most generally used model is so-called risk-based pricing, where the interest rate is based on the customer information used when making the credit decision.

Additionally, different credit providers may use different base and reference interest rates. When comparing loans, take note of whether a fixed interest rate or reference rate, such as the 3-month Euribor, is being used.

Learn more about OP Tailored Consumer Credit

Methods of repaying secured loans

The costs of secured loans depend on the amount borrowed — and the chosen repayment method. You can choose between variable annuity, equal payment and equal amortisation as repayment methods, depending on which is the best fit with your circumstances. Be aware that the repayment method can have a major impact on the size of repayments.

Costs of secured loans

As well as the borrowed amount, the final costs of secured loans include the establishment fee, interest and monthly loan servicing fees. In addition, there may be costs due to obtaining collateral documentation: ordering a house manager’s certificate, or a certificate of registration of title and certificate of abstract of title.

When comparing loans, note that the margin paid on the bank loan is individual for each customer. This is affected by factors such as the collateral you can provide, your repayment capability, and whether you mainly bank with OP.

The costs of secured consumer credit include:

A maximum origination fee of 120 euros charged when the loan is drawn down, as well as a monthly servicing fee of 2.50 euros
The interest on the loan, for example 12-month Euribor + customer-specific margin
The costs of required documents attached to the loan application

Comparison of credit costs

Credit costs can be handily compared by using the effective interest rate and total costs. The effective interest rate must always be expressed as a percentage, to make comparisons between credit products as easy as possible.

When comparing credit costs, check that the offer is based on the same loan amount and loan term (payback period). If the loan terms are different, comparing the total credit costs will provide a more reliable picture of how expensive the alternatives are. In the case of long loan terms, comparing the effective interest rate is the best way of estimating the costs.

Before applying for credit, remember to find out about the so-called Standard European Consumer Credit Information. The purpose of such information is to make comparisons between loans easier.