Part 2: What is in a name? Types of loans and what they’re called in Denmark

Aug 27

Written By Milie .

A 3-part guide to important loan terms and what to look out for

As much as I would love to say I know and understand all types of loans in Denmark, I don’t. And I also don’t want to make this article longer than it already is. Instead of trying to cover absolutely everything, this is a list of the types of loans I think you’re most likely to hear about here in Denmark.

Forbrugslån

“Forbrug” in Danish means consumption or expenditure. Here, it simply refers to a loan you take “for the sake of using” a.k.a it can be for anything. Forbrugslån are also unsecured, which means you don’t need to offer up collateral for it.

Privatlån

This one’s pretty easy, it’s a “private loan”. Sometimes, people use it to refer to loans they have taken “privately”, maybe borrowing money from friends or family. This is not actually what it refers to, though. It’s essentially the same thing as forbrugslån, just with a slightly fancier sounding name that a lot of banks also like to use. It refers to a loan taken by a “private person” a.k.a any individual.

Realkreditlån

This is the big M: a mortgage. This is what you’ll most likely have to look into if you’re looking to take out a big loan for the sake of buying a new house or property.

The big thing here is that realkreditlån is a secured loan, which means you have to offer something up for collateral. The collateral will typically be the house that you’re buying, so effectively, the bank owns a certain percent of your house. The more you pay off the loan, the more you own of the house.

Also, remember the gældfaktor from part 1? If you’re looking into realkredit, this is the time to start looking at your gældsfaktor as well.

Kviklån

Kviklån can be translated to “quick loan” and is a term you will certainly see a lot if you’re looking at loans online.

Quick loan history: Back when I was a wee lass, I remember seeing commercials on TV advertising for all these wonderful loans, “borrow easy money TODAY, don’t worry about it AT ALL, just KEEP BORROWING MONEY”.

These old quick loans drew people in by promising small loans (like a couple thousands) that you could apply for and receive immediately. The loans would usually have very short durations too, and were advertised as a quick way to get paid (in English, these are sometimes also called payday loans).

However, the kicker was that the interest rates and the APR was astronomical on some of these. I’m talking above 100%, even into the 1000s in some cases. That means that, even if you just wanted to borrow a quick 2000 kr. to carry you over into next month, you could end up paying back 20.000 kr.!

So, in 2020, the Danish government set a stop to this by introducing a legal limit to the APR. As mentioned before, it is illegal for loans in Denmark to exceed 35 % ÅOP, but if the lender wants to advertise for their loans, they cannot go above 25 %.

With this law, the scammy old kviklån model died, but lenders will still use the term because lots of people still search for it. All you need to know is: Kviklån don’t exist anymore, it’s just a term lenders use to imply their loans are “fast”.

Kassekredit

Kassekredit is not technically a loan. In English, you can call this an overdraft, so as much as going into your overdraft is you borrowing money from your bank, I guess you could call this a loan.

If you have any kind of debit card, you can’t go into overdraft. These cards check your balance immediately and reject the transaction if you don’t have coverage.

A Visa/Dankort in Denmark can go into overdraft because it doesn’t check immediately, but the bank isn’t super keen on you doing it.

A credit card might sound very similar to kassekredit, but it’s a separate thing. Even though it’s a similar idea of spending money you don’t have.

Kassekredit is a negotiated overdraft that you can add onto your existing account. It can give you a “buffer”, but you pay interest on however much you spend into your overdraft. In that way, it’s similar to a loan, but in some cases, it can also be hard to keep track of.

Fast eller variabel rente

Loans have interests, but how those interests are calculated can vary. There’s no specific “best way” or anything, it depends on what you’re comfortable with.

A “set rate” means that the interest doesn’t change throughout the duration of your loan. If the ÅOP was set at 23,5% when you took it out, then you’ll be paying that 23,5% until the end. Usually, this means that the interest costs make up for most of your monthly payments in the beginning. As time goes by, you’ll start paying more and more towards the principal. This way, you often end up paying off most of your interests before you’ve paid out the principal.

In Denmark, you might see the term “fastforrentet lån” which means “loan with set rate” at the bank. This is a specific type of realkreditlån (house loan) where the rate is set for 30 years. This can be a benefit if the market rate goes up in the next 30 years, but it can suck if it goes down. You’re stuck either way, unless you try to negotiate again with your bank.

A variable rate is of course the opposite. This typically relates to bank loans, where the interest follows the market - please don’t ask me to explain how “the market” controls the interest, I’m just a girl and I don’t even have a pension.

Back with realkredit at the banks, this is sometimes called Tilpasningslån. “Tilpasning” means To Adjust, so you could translate this to “adjusting loan”. Of course, the thing that “adjusts” is the interest rate, and the thing it adjusts to is the market (™).

Afdragsfrit lån

An afdragsfrit lån allows you to pay only the interest and fees on your loan for a specified period (typically up to 10 years for a mortgage), without paying down the actual principal (hovedstol).

While your monthly payment is significantly lower during the interest-only period, your total interest cost over the life of the loan goes up. Once the interest-only period ends, your monthly payments will jump up a lot because you have to pay back the full principal in less time.

Tillægslån

If you already own property and its value has increased (or you’ve paid off a significant portion of your mortgage), you’ve built up equity (friværdi). A tillægslån is an additional loan taken out against this home equity. People often use top-up loans to pay for home renovations, buy a new car, or pay off higher-interest debt.

Samlelån

“Samle” means To Collect. In English, this would be a consolidation loan. If you’ve accumulated multiple small loans and credit card balances, keeping track of different interest rates and monthly fees can get expensive and chaotic. A samlelån combines all existing debts into one single loan, ideally with a lower interest rate and fewer monthly fees, lowering your total ÅOP.

Studielån / SU-lån

If you are enrolled in higher education in Denmark and receive the state educational grant (SU), you are eligible for an SU-lån. However, for expats, there are a few extra steps to this than simply starting education. To get SU in Denmark, you have to apply for “equal status”. Read more about it here: https://www.su.dk/foreign-citizen/gb-foreign-citizen

SU-lån is one of the cheapest loans you can get. The interest rate while studying is fixed by law at 4% per year. After you graduate, the interest rate drops to the Danish central bank's base rate plus a small margin (historically around 1%–2%). You don’t have to start repaying until 7 or 8 months after completing your studies, and you get up to 15 years to pay it off.

Disclaimer: This article is for educational purposes only. Career Club Denmark is not liable for any decisions made based on the contents of this article. For financial advice related to your specific case, please reach out to your bank and/or financial advisor. .