Irish consumers will shortly be able to shop around in Europe for the best credit deals following agreement within the EU on changes to the €800 billion loans market.
The decision by EU consumer affairs ministers to introduce a directive on consumer credit loans will intensify competition among lenders while making it easier for consumers to get the best value in credit cards, car loans, purchase finance and other loans, excluding mortgages.
The aim is to create a single market in the EU for credit loans to replace the current fragmented system. At present, only 1 per cent of loans are obtained from outside the borrower's home state.
While the Irish are among Europe's biggest borrowers, for the moment at least, there may be little incentive for consumers here to seek out lenders abroad. At 6.8 per cent, the cost of credit in Ireland is among the lowest in the EU, where rates vary between 6 per cent (in Finland) and 12 per cent (in Portugal).
The main effect of the new rules will be to provide standard, comparable information to customers across the EU who are taking out a credit loan. An EU-wide European credit information form will be created to give consumers information on interest rates, number and frequency of payments, charges for defaulting, and so on. There will also be a single EU-wide method for calculating the APR (annual percentage rate of change) so consumers can see the true cost of credit.
The proposed directive also provides consumers with a two-week period after concluding a credit contract during which they may withdraw without having to give any reason or incur any charge. Another provision confirms their right to repay a debt early at any time. Creditors will be able to claim compensation in such cases, but will have to conform to EU-wide standards.
EU consumer affairs commissioner Meglena Kuneva said: "At the moment trying to compare different credit offers across the European market is like trying to compare apples and pears.Standard, comparable information for all EU credit loans will make the market more transparent for business and consumers."
The proposals must be approved by the European Parliament before they take effect.
