Bank clients in Finland seek fewer repayment-free loans as interest rates rise

Bank clients in Finland are seeking fewer repayment-free loans compared to the pandemic period. For instance, the number of repayment-free loans taken by OP’s personal customers has declined over the last few years. In 2022, OP’s loan clients availed themselves of repayment-free periods about 20% less than in 2021, and from January to August this year, the number has again fallen by nearly 20% compared to last year. During a repayment-free period, the borrower pays only interest and fees. Currently, with interest rates significantly higher than during the zero-interest era, the relief on monthly expenses is not as substantial.

Kirsi Välimäki, the business director at OP Tampere, noted that long loan terms make total interest amounts significant, leading many to wish to reduce their loans as money has gained a cost. While interest rates have recently decreased, Välimäki anticipates demand for repayment-free loans will stabilize at a regular level. These loans are typically sought for various financial situations, such as parental leave, study leave, or unexpected expenses.

During the early stages of the pandemic in 2020, a record number of Finns applied for repayment-free periods due to increased layoffs and unemployment. The demand for such facilities nearly doubled during that time. According to Yle’s inquiries, major banks reported a stabilization in the demand for repayment-free periods post-pandemic peak. Nordea, for example, saw a stable demand following the initial spike. Additionally, clients have options like repayment flexibility, allowing loan modifications via mobile or online banking without a separate application process.

Similarly, Danske Bank noticed a significant rise in repayment-free applications during the pandemic, but demand has since dropped. In 2022 and 2023, high inflation and interest rate increases triggered new demand spikes, though they remain lower than pandemic levels. At S-Pankki, demand was highest during the pandemic, with a peak at the end of 2022 amid rapidly rising rates. However, the situation has since stabilized.