This is the impact of the guidelines on credit cards for you
The Finance Authority (Finanstilsynet) recently introduced updated guidelines regarding consumer loans and credit cards. This is what the guidelines entails.
On October 1 this year, new guidelines for unsecured credit were introduced. The guidelines impose, inter alia, lenders a stricter appraisal of applications and more thorough follow-up, but what will the guidelines mean in practice for the users? The Dinero.no website presents five changes that can affect you as a customer.
1. Your debt can not exceed five times your gross annual income
A similar guideline was previously reserved for mortgages, but now also applies to unsecured credit. Your debt can not be in excess of five times the gross annual income. This limits the amount of money you can lend.
– As an example, you already have a mortgage amounting five times your gross annual income, you most likely may not lend more in consumer loans or other unsecured credit. It will be difficult for you to obtain a credit card in addition to the loan, states CEO in Dinero.no, Anders Fagereng, in a press release.
Total debt involves car loans, mortgages, student loans, outstanding credit card debt, et cetera.
2. Credit card debt can be converted into repayment loans
As mentioned earlier, the new guidelines also apply to credit cards. The policy states that “Frame credit, which over time is fully utilized, finance businesses should convert into repayment loans”, this should even apply to credit card holders..
– If someone uses all their credit, it’s not unthinkable that this person has a plan regarding repayment that fits their finances. The purpose of the policy seems to be good for people who have problems with credit card debts, but for individuals who are in control of their private finances it may seem to be over controlling, says Fagereng.
3. Difficult to obtain additional credit cards
The guidelines facilitate a simplified processing of individual applications. For applications for credit cards with a credit limit of less than NOK 25,000, the lender may disregard the current debt ratio, ability to pay and repayment.
– This means that students and people with low income can still get a credit card, which in itself is good. However, as we interpret it, the guidelines make it more difficult for people to obtain more than one credit card, says Fagereng.
According to Finanstilsynet’s guidelines, “provisions on serviceability, debt and deduction do not apply when credit card applications with credit limits are granted up to NOK 25,000, – provided that applicants do not already possess credit cards.”
– Many have several credit cards to gain more benefits. Some cards are better on insurance than others, where the other has better discounts, such as petrol discounts. Now it seems that the Norwegian Financial Supervisory Authority is obstructing those groups in society who are most in need of discounts and included insurances, namely those with limited income, Fagereng explains.
If, on the other hand, the restriction applies only to one bank, it is not as problematic as different banks offer competitive alternatives to beneficial cards. If a bank has multiple beneficial cards in its portfolio, it can be interpreted such that the bank can only offer one of them.
4. Loans must be repaid within five years
Another novelty introduced in the guidelines is that unsecured credit such as consumer loans is going to have a repayment period of a maximum of five years.
– Although the total loan becomes cheaper with shorter repayment periods, the monthly installments will be higher. This may not be suitable to all customers, and it’s a shame that the new guidelines deprive those who wish to repay less for a longer period of time this possibility.
Traditionally, statistics from the banks themselves show that consumer loans are usually repaid within a few years, even before the new guidelines took effect on October 1 this year. For most people, it is therefore not difficult to adapt to the guidelines.
5. Refinancing can be repaid over a longer period
Additional loans have as stated, a maximum longitude of five years, but if you are to refinance your repayment can be extended. Your loan can not however have longer repayment period than your current debt. If you have several loans, the loan with the longest repayment period will determine how long your loan period will be.
Additionally, when refinancing, you can not lend more than what you have done already, therefore you are only allowed to merge existing debt into one loan.
– It’s good that it is still easier to make debt cheaper. For those who struggle to get rid of their debt, it’s positive that one can not to incur more debt by taking up an additional loan on top of the amount to be refinanced. Nevertheless, this will go affect customers who actually have a desire to lend more beyond refinancing debt and are financially capable of doing so, says Fagereng
© dinero.no / Norway Today