Stricter lending regulations may make the car of your dreams unattainable from 1 July

The car of your dreams may become even more unattainable from 1 July. Because then new lending rules come into force, and it will be assessed whether you can tolerate an interest rate increase of three percentage points above the current car loan rate.

DNB’s executive director for personal markets, Ingjerd Blekeli Spiten, says it will become more demanding to get a loan:

– Banks must now make greater demands on serviceability and debt ratio, which will lead to more loan applications being rejected.

At car dealer Sandven AS, there are several brand new Range Rovers with an average price of NOK 2.6 million. In recent months, customers have come to terms with the stricter lending regulations, and are now waiting to have their dream car unpacked and ready.

Such luxury cars are anyway not attainable for most people, but from this summer it will also be difficult to get loans for cars worth a couple of hundred thousand, i.e. cars for ordinary people.

Great in the wheels

Car dealer Trond Sandven is upset about the Ministry of Finance’s new requirements for car loans.

– The last thing we need now is a new law like this. It sticks sticks in the wheels.

He is not referring to the expensive luxury cars, but to cars that everyone chooses to cover the need for driving to and from work and daycare.

Sandven says the regulation makes it even more difficult for everyone who now feels the economy is tight due to expensive times.

– A car is a means of getting ahead and a need, not just a means of status, says Sandven.

Ten percent interest

From 1 July, the Ministry of Finance’s regulations, which currently apply to housing and consumer loans, will also apply to car and boat loans.

Then financing companies and banks will no longer be able to lend you money for the car or boat of your dreams if you cannot prove that you can service the loan even if the interest rate were to increase by three percentage points.

This means that if you want to take out a car loan with a seven percent interest rate, you must first show that you are able to service an interest rate of ten percent.

The lending regulations came in the wake of increased housing prices and rising debt. For eight years, the regulation has regulated how much banks can lend to consumers with a mortgage on a home. For four years, the requirement has also limited how much you can get from consumer loans.

What is new is the requirement that anyone who borrows for a car or boat must also withstand a sharp increase in the interest rate of three percentage points.

Several are refused

Financing companies such as Santander, DNB Finans and Brage must investigate more thoroughly to assess whether you can get a loan.

– This will probably affect most people in the establishment phase and households with a low income, says Spiten.

When the banks get less flexibility in their assessment of the customer’s serviceability and total debt, it will affect everyone with tight finances.

– It primarily affects those with the lowest operating ability and higher debt levels.

Meets people in the establishment phase

The executive director is most concerned about everyone who will no longer be able to afford a car they need in everyday life.

– While a boat is a luxury object that can be discarded, it probably hits harder for households that have a need for transport and are dependent on a car.

Managing director Jonas Gams Steine ​​at Bergen Marine is less worried about boat sales since very few of his customers need new financing.

– A three percentage point increase in interest rates is unlikely to overturn the load for boat buyers.

Gives up the demands

The financing company Brage is developing new solutions to make it easier for customers to provide detailed information about income and financial obligations.

Assistant director Grethe Tungesvik confirms that more applicants risk being turned down.

– Customers with high leverage may experience problems meeting the requirement.

– Private customers who apply for loans for cars, boats and other vehicles will be affected by the fact that we have to obtain more information to assess the applications.

The companies assess operating ability by looking at your expenses and income. Car loans are counted in the total debt.

You cannot have a total debt of more than five times your annual income and must also withstand an interest rate three percentage points higher than the interest you get when you apply for a loan.

So if you earn NOK 600,000, you can borrow up to NOK 3 million. If you need NOK 2.8 million in a mortgage, you can only apply for NOK 200,000 in loans for a car, boat, consumer, study or holiday home.

– Cancel your credit card

Tungesvik’s advice to you who are applying for a car loan is to clean up credit cards that are not in use, because the combined credit limit on all cards is considered debt. The requirement is that you must repay the credit within five years.

– Check the debt register and cancel your credit card or reduce your credit limit.

Car dealer Sandven reacts to the fact that the financing companies’ mortgage on your car also expires after five years, according to the new regulations.

– It is wrong to compare consumer loans with car loans. The car still has value after five years, he says indignantly.

Advises customers to apply together

Tungesvik has some advice if there are two of you in the household: She encourages both of you to appear as borrowers in the loan application, as this will provide a better basis for being able to offer loans.

Spiten expects that the current practice for loans for housing and holiday homes will also apply to car loans from the summer.

– We believe that this will lead to an increased proportion of co-applicants for car loans (meaning that several people are jointly responsible for the loan), which is more common for mortgages and holiday homes today.

Positive for stricter requirements

Not everyone regards the tightening of lending practices with horror. The lending regulations are welcomed by the Consumer Council, which believes that stricter requirements for those who lend money are a good thing.

Subject director Jorge Jensen is pleased that car loans will also come under the regulations for loans. He says it will be beneficial for customers to reduce their debt burden and get better protection against ending up in the collection pile.

– Two thirds of debt collection cases are about loans and credit, emphasizes Jensen.

– Signs of illness

Scandinavia’s largest debt collection company experienced an increase in debt collection cases of more than 20 percent from November 2022 to January 2023.

– We see this as the first sign of illness in most people’s private finances. Now the payment problems are starting to hit more broadly, says chief analyst Morten Trasti at Intrum.

He confirms that defaults on car loans are rising and explains it, among other things, by the fact that the savings buffer from the pandemic has now been used up.

So we may have to wait until next summer to see if the tightening of the lending regulations has managed to reduce collection cases after car loans. Saving for a more affordable car can be the solution for many, says head of car finance at Nordea, Trond Nyhus.