Would you like to buy a new tablet, bag or scooter? Could you afford to buy a home of your own? To finance large purchases, you often need more money than you have in your wallet or account. Acquisitions can be financed by saving in advance or by taking out a loan. Saving in advance is usually the best way you acquire what you want.

How you finance your acquisition usually determines its final price. A loan can be a quick way of realising one's dreams, but its costs may come as a surprise. Saving in advance is usually the most advantageous option. Taking out a loan may sometimes be sensible, but not always.

Only adults, ie those over 18 years of age, can get bank loans, consumer credit or quick loans. Prior to issuing a loan agreement, the lender is required to assess whether the prospective borrower will be able to fulfil the obligations under the loan agreement, in other words, whether the borrower will be able to repay the loan with interest and costs incurred. Paying back the loan is best ensured when you have a regular income.

Summary

Saving in advance rather than borrowing is usually the most advantageous way of getting what you
want. Only adults, ie those over 18 years of age, can get bank loans, consumer credit or quick loans.

Glossary

Eoniakorko (EONIA, euro overnight index average)

Weighted average interest rate on overnight loans given by euro area banks to each other.

Euriborkorko (EURIBOR, euro interbank offered rate)

Reference rate of the euro area money markets, which is determined on the basis of the interest rates at which major euro area banks offer credit to each other. Euribor is the most commonly used reference rate for housing loans in Finland. Examples of Euribor rates include the Euribor rates for 1 week, 3 months and 12 months.

Interest rate

The percentage of extra money you get back if you lend your money to someone else (or keep it in the bank) or the percentage of extra money you have to pay back if you borrow money (in addition to the loan received).

Key central bank interest rate

The central bank may have an influence on the level of market rates, such as Euribor, by adjusting the key central bank interest rate. Key central bank interest rates also used to manage the quantity of money. The most important key central bank interest rate of the Eurosystem is the interest rate on the basic refinancing operations. By adjusting this rate, the Eurosystem communicates the monetary policy stance.

Prime interest rate

Prime interest rate is banks’ own reference rate which can be used as the reference rate for both loans and deposits. In practice, the level of the prime interest rate is determined on the basis of the general market conditions and short-term outlook.

Real interest rate

The real interest rate where the influence of inflation has been deducted. In a context of high inflation, the real interest rate is considerably lower than the nominal interest rate. Correspondingly, in the context of deflation, the real interest rate is higher than the nominal interest rate.

Deposit protection

An arrangement which protects the funds on depositors’ accounts in circumstances where the deposit bank loses its liquidity. In Finland, the deposit protection amounts to EUR 100,000. The objective of the deposit guarantee fund in Finland is to secure depositors’ clams on banks. More information on the activities of the fund is available at https://rvv.fi/en/frontpage.

Reference rate

The interest rate to which the interest on a loan or deposit is linked.