The new Interest Ceiling Act sets a 20% interest rate cap on loans over USD 2,000 and limits the cost of the loan to USD 150 per year.
The new Interest Ceiling Act also limits the costs of extending the payment period, which can be charged at a total of USD 20 per year. You may be charged up to five USDos at a time for a single extension of the payment period, provided that the payment period is extended by at least 14 days.
What does the new Interest Ceiling Law mean for the consumer?
For consumers, a tighter interest rate cap is mainly a positive thing: it increases competition between market players, makes loan rates more consumer friendly and simplifies credit marketing. So you may be able to get a better loan in the future.
It is also easier for you to keep track of the total cost of your loans. In the past, the cost of borrowing was controlled by limiting the effective annual interest rate, a formula which is quite challenging for the average consumer. The new law will move to a separate model governing interest and other borrowing costs. Now, the complexity of calculating the effective annual interest rate is no longer of equal importance, as the nominal interest rate of a loan may in future be up to 20% and the cost of the loan is limited to USD 150 per annum.
On the other hand, the criteria for granting credit are tightening, so it may not be easy for all those who have previously obtained credit to do so in the future. This is due to a reduction in the risk-taking capacity of credit lenders.
What does the new law mean for the industry?
Changes in the tightened interest rate ceiling law will initially be reflected in the consumer credit market and in competition between financial companies. Banks and large financial companies are already preparing for the future law by starting to grant low-interest and unsecured consumer loans.
Indeed, it is predictable that the consumer credit market will remain in the hands of banks and larger financial companies and that smaller financial companies will disappear as competition intensifies. The interest rate cap on loans was last adjusted in 2013, when a consumer interest rate cap of 50% was set for consumer loans below USD 2,000. With the previous legislative reform, more than half of the industry’s employees ceased operations.