Loans are in their simplest form an agreement between a lender and a borrower about the loan terms. The lender has the funds available and borrows them under specific criteria, often through an interest rate of some sort and some additional fees. This is considered the payment for borrowing the money and is paid back monthly, quarterly, biannually, or annually by the one who borrowed the money. As the agreement is made, certain aspects like amount, runtime (how long the period for returning the money is), and interest rate must be set. This is often done by banks to consumers, where banks have the funds available to them and lend them to their customers under a specific contract.

An example of a loan like this could be an amount of 100 000 NOK, over a runtime of 8 years (96 months), with an interest rate of 7%. With fees included, the final repayment for this loan is around 140 000 NOK. However, this amount is split over 96 terms (months), with a monthly payment of 1377 NOK (fees included).

Usually, you would need to consult a local bank to sign up for a loan, but as online banking has become more and more popular, there are several lenders offering convenient online loans. While most traditional banks require a thorough investigation of your financial standpoint regarding monthly income, budgets, last year’s spending and much more, online banks often require less information, which makes them more accessible. Some online lenders might also offer lower interest rates, since they are not burdened by paying rent for a physical subsidiary in the area.

To apply for an online loan, you must fulfill the following requirements:

• Be over 18 years old. Some banks might have a minimum age requirement of 20 or even 25. This requirement often comes with bigger loans, so there are still plenty of loans available to you even if you are only 18.
• Have your place of residence in Norway, and generally, you must have lived in Norway for 3 years. Some financial institutions, in connection with bigger loans, might require a Norwegian citizenship and/or a Norwegian identity number as well.
• Have a stable income source. Banks offer the loans on the basis of getting back the money after the runtime has passed. If you have no income source, you cannot pay back your loan with the added interest, which in turn means you will not be able to take a loan in the first place.
• Have BankID, a personal electronic identification system. This is necessary for identification, as well as for signing of documents online.
• As a general rule of thumb, the borrower must not have a total debt that exceeds 5x the annual income. The borrower must also be able to withstand an interest rate increase (on the total debt) of at least 5%.

Here is an overview of the loans offered by online lenders in Norway, which you can also find right here on Moneezy:

Classic loans

In Norway you can generally distinguish between two loan types: Secured Loans (Lån med sikkerhet) and Unsecured Loans (Lån uten sikkerhet). Most loans offered by online lenders are unsecured loans, which are Consumer Loans (Forbrukslån) and Mini Loans (Smålån). These are very similar, with the main difference being how much you can borrow. In both instances, you apply for a loan of a certain amount, as well as decide on a runtime for paying it back with the added interest and fees. Note that the runtime usually cannot exceed 5 years. These loans can be used for a lot of different things. A smaller loan amount can be used for an unexpected expense that has come through, an emergency that must be taken care of, or invested in an item you have wanted for years. A bigger loan is more suited toward initiating start-ups, loans for vehicles, as well as energy optimization or renovations in your home. The possibilities are endless, which is why the consumer loan is the most common loan.

Special loans

Consolidation Loans (Refinansieringslån) is a term for combining several smaller loans into one big loan, to avoid paying a huge interest for several loans at a time. These are especially useful when consumers have taken several small loans and are now burdened with several payment dates and different interest rates.

Lastly, we have Overdraft (Kredittlån), where you have a set amount available on an account for an agreed period of time, e.g., 100 000 NOK for 5 years. The repayment amount is calculated based on how much money you withdraw from the available credit. In many ways, it is very similar to a credit card, but the biggest differences are that this type of loan can both be secured or unsecured and often the interest rates offered are better than for a traditional credit card. This is especially useful when conducting a big project, for example, a house renovation, where unexpected expenses can come out of nowhere.

Pros

• Loans that suit your situation
• Allows you to realize your projects
• Transparency throughout the entire process
• No loan justification
• Convenient and flexible

Cons

• Lifestyle inflation, where you spend more money because you have more money
• Debt, if you are not careful with your budget
• Reckless spending
• Extra fees if you do not comply with payment dates

If you are not realistic and thorough in your planning of budgets in connection with your loans, you can end up having trouble paying them back over time. Furthermore, if you apply for a loan to spend on devaluating assets such as technology, fashion, and trends, you are not looking at investments, but rather at reckless spending, something to avoid using loans for. Being mindful and intentional about your loans is the most important aspect. But if you keep these risks in mind when applying for a loan, they can be a great source to realize projects.