News, Culture & Society

The consumer lending market in Denmark continues to fall

In July 2020, the total volume of consumer loans in Denmark amounted to 450.86 billion kroons (hereinafter referred to as Danish kroner), which is 2.28 billion less than in June. The reason for the recession was both the coronavirus epidemic and the tightening of requirements for companies issuing loans. The market contraction continued throughout 2020 with few exceptions.

Statistics and forecasts

From 1991 to 2020, the average monthly value of the consumer credit market in Denmark was 359.77 billion kroons; a record high of 585.45 billion kroons was recorded in September 2008, a record low of 145.77 billion kroons in January 1994.

According to global econometric models and analysts’ expectations from Laanius.dk, consumer credit in Denmark will reach 469.56 billion kroons by the end of this quarter. Further prospects look like this:

  • in 2021, the average will be 463.52 billion kroons;
  • in 2022 – DKK 471.40 billion.

The current market contraction has primarily affected small and medium-sized lending companies such as Simbo, Alfalån, Nova Finans, as well as credit intermediaries such as Lånio.

Reasons for the market decline

As noted, one of the main factors behind this reduction is the tightening of legislation related to consumer loans: the Danish government has taken these measures after Norway. The amendments to the law came into effect on July 1, 2020.

So, restrictions on the rate were introduced: its maximum annual value now cannot exceed 35%, and the total loan overpayment is 100%, and this value also includes possible penalties due to delays (it should be noted that these rules apply only for Danish companies).

In addition, it is now prohibited on television to advertise loans and gambling in the same blocks, for example, bookmakers (that is, entertainment that creates the prerequisites for impulsively obtaining a loan). A complete ban on advertising applies to companies with an annual rate of more than 25%, while it applies to all routes: television, newspapers, websites, etc. Companies offering loans at such a rate are not allowed to advertise their other products including cheaper or preferential ones. In addition, brokers cannot offer their services.

According to forecasts, such amendments will lead to the closure of the majority of microfinance companies that offered small loans at high-interest rates (up to 300-800% per annum).

In addition to restrictions on issuing companies, Denmark has introduced the practice of advising persons in financial distress or “debt trap”. Finally, there will be more emphasis on personal finance management lessons in primary and secondary schools.

Finally, we note that the market decline is also associated with the coronavirus: in particular, the need for such popular types of consumer lending in Denmark as a loan for a vacation, for buying a boat, etc., has disappeared.