As we start to see lending rates rise after its all-time low in April 2020, it’s important to be aware of the potential financial implications.

Photograph: Tierra Mallorca on Unsplash

After hitting an all-time low of 3.2078% in April 2020, the Finland Bank lending rate is slowly starting to rise again. Throughout the rest of the year, Finland’s average lending rate—which has hovered around 4.18%—has been one of the highest in Europe. Only Latvia, Russia and Ukraine have higher lending rates, at 4.36, 6.24 and 11.16% respectively. With a rate of 3.2078, Finland would have dropped four places on this list according to Trading Economics—making them lower than Estonia, Albania, Malta and Greece.

Between January and April 2020, Finland’s lending rate dropped from 4.6198% to its low of 3.2078%. The dip didn’t last long. By the following month, the rate had reclimbed to 4.2278%, representing a percentage increase rate of almost 32%. This is less than half of Finland’s all-time high lending rates of 9.73%, which it hit during the global financial crisis at the start of 2009—but the increase is still unlikely to be popular with consumers who are hoping to take out a loan.  

Although you can use a loan scouter (Lainaa) to find the most suitable solution for your needs, there are a number of implications for rising lending rates. Read on to find out what the recent increase could mean, both for the economy and for the people of Finland.

What Are the Effects of Higher Lending Rates?

1. Loans are less accessible

The biggest effect of rising lending rates is the fact that loans become less accessible. Many people may feel discouraged from taking out new loans, while those who have already taken one out will be hit with higher interest payments. This is particularly true for people who have taken out large mortgages, and can often disproportionately affect first-time buyers.

In turn, can have an adverse effect on the economy. Because it reduces the country’s level of disposable income, it means that people are less likely to spend money in businesses such as shops, restaurants, and entertainment stores.

2. People are move likely to save than spend

When people are less likely to spend, those who can afford to save money are more likely to do so. Higher lending rates can also apply to banks, which in turn accept “loans” in the form of savings deposits and investments. As a result, this can sometimes mean that savings accounts will yield greater profits over time—though this can take a lot longer to become apparent than rising lending rates.

3. National confidence can fall

In times of higher lending rates, individuals and corporations alike are both much less likely to make risky investments. This can have an adverse effect on early-stage businesses and other high-risk opportunities that rely on funding from investors.

It also means that businesses are less likely to form. With the rising cost of bank loans, many people can be unwilling to take the financial risk that’s involved in launching and funding a new business venture.

Changing lending rates is nothing new. But as we start to see lending rates rise after its all-time low in April 2020, it’s important to be aware of the potential financial implications—especially if you’re considering taking out a loan yourself.