If you have taken a loan from the bank, such as mortgages, car loans or private loans , you have to pay interest in addition to amortizing the loan.
Interest is the price of a loan
Just as it costs money when you go to the hairdresser or buy food and clothes, it also costs money to borrow money. The price of the loan is what is called interest.
However, there are some differences in interest rates and pricing on products and services.
One difference is price sensitivity. A couple of high quality brand shoes, many think it is reasonable to pay a higher price, while there are few rational arguments for paying a higher interest rate than necessary.
Another important difference is that interest on loans is usually set individually based on one’s financial situation while the price of a pair of shoes is the same regardless of who buys them (usually).
A third big difference is that prices for products and services are generally stated in SEK and the ears while interest is stated in percent (%). Hence our call “You must think about the percentage” in all our advertising. Because if you do not, you can stand there with an unnecessarily expensive loan.
Like other products and services, where a pair of identical shoes of the same brand may differ in price depending on the retailer, the interest rate on a loan can also differ a great deal depending on which bank offers you exactly the same kind of loan. The price difference of a pair of shoes may be about a few hundred pounds at most while on a private loan we talk tens of thousands of kronor.
So finding a loan with the lowest possible interest rate is worth spending a little time on.
What can I do myself to get as low an interest rate as possible?
When it comes to mortgage loans, there are really not many banks to choose from since the major banks more or less own this market. But still we recommend that you compare them and negotiate. Many borrow millions of dollars in mortgages and the smallest small interest rate reduction can be worth changing banks for.
When it comes to car loans, there is a lot to consider. Is it a new or used car to buy? How old is it? Do you have a cash bet or not? Will you be able to solve the entire loan on the day you sell the car? Read more about car loans here and what to think about.
When it comes to private loans, there are at least about 20 banks and lenders to choose from. To ensure that you get the best possible interest, the starting point for applying for a private loan should always be with a loan intermediary like us. When you apply through a loan broker you compare a large number of banks in one go. Read more about loan intermediaries and what we do here.
How do I know if I got a good interest rate?
With regard to mortgages, interest rates are still low and variable interest rates are somewhere between 1.7-2.1% at the time of writing.
When it comes to car loans, interest rates start somewhere from 2% upwards. Factors that affect what interest you get are – in addition to your financial situation – how much you intend to borrow, maturity, whether you have a cash contribution or not.
If we talk about private loans, interest rates start from about 2.95% and up. Most are somewhere between 4.90% – 14.90%. But getting an interest rate of 4.90% versus 14.90% on a loan of SEK 250,000 is of course a huge difference.
Read more about what interest rate you should have based on your age and income here.
Movable vs fixed rate
A fixed interest rate, or a so-called bound interest rate, means that for a predetermined time, one and the same interest rate is obtained. Many choose to have a fixed interest rate on mortgages of 1,2,4, 5, 7 and 10 years to guard against interest rate increases. The disadvantage is that bound interest rates come with a premium cost and if the variable interest rates are below the fixed during the binding period, you lose money on it.
As for private loans, the interest rate is almost always variable. By variable interest is meant that the interest rate is controlled by the market interest rate or by an index such as STIBOR.
Nominal vs effective interest rate
One can say that nominal interest rate is the interest rate that one pays on a loan. Effective interest is the nominal interest rate plus any fees such as, for example, lay-up fee and newspaper fees. In addition, the mathematical formula differs somewhat for how to calculate the effective interest rate even if the outcome is marginal.
The effective interest rate is therefore the interest rate that makes comparison between loans easiest. So when comparing a loan with another, it is important to compare effective interest rates to make a fair comparison.
How do I calculate interest?
If you want to borrow SEK 50,000 in one year at an effective interest rate of 5%, it is easy to calculate the cost yourself by simply taking 50,000 x 0.05 = SEK 2,500 provided that you do not repay anything during the year.
However, if you borrow SEK 50,000 with an interest rate of 5% but over 5 years and amortize the loan in the meantime, the calculation is more complicated. Is it an annuity loan or straight amortization? Rather search for a loan calculation online where you can easily and smoothly make a calculation. Please use the loan calculation we have on the main page.
The policy rate is the interest that the banks pay when they borrow money from the Riksbank in the short term. It in turn affects the interest rate that the banks charge their customers.
You can deduct the interest you have paid on a loan during the previous year when you declare. Right now a political debate is underway if the interest deduction is to be abolished or not. Read more about what a discarded interest deduction means for you.