What You Need to Know About SMS Loan (Lån)

A lot of industries have benefited from digitization, but not many more than the banking industry. Opening an account with a bank is easier and more convenient, all from the comfort of your home on your mobile device. These banks took it a step further and made it easy for customers to secure loans via mobile phones, and the application will be processed immediately and the offer sent back to the applicant.

This was the idea behind SMS loans and while it might seem like that’s all there is to it, understanding how this process works is important. One reason you need to understand how an SMS loan works is that it will help you manage your finances. You can visit https://hbr.org/ to learn different ways to manage your finances. Therefore, in this article, we will reveal all you need to know about SMS loans.

SMS Loan Explained

Some years back, a few upcoming banks ran adverts inviting people to take SMS loans that can be processed within a day. They claimed that you could send an SMS to the lender or bank, which would process the application and send you the requested amount immediately. The thing about these loans is that they never exceed a couple thousand kroner.

The adverts made the loan process simpler than it actually was even though it was much more complex. For instance, the applicant had to sign a credit agreement. Furthermore, the credit agreement was sent to the applicant’s email and not via text.

Therefore, in essence, it was almost the same process as getting an instant consumer loan. With the fast processing of bank transactions via banks’ websites and apps, the SMS loan is obsolete. All that you need can be gotten instantly provided you have a supported smartphone and good network.

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SMS Loan: In Name Only

As far as this type of loan is concerned, it doesn’t exist in the country. It is only used in name as a marketing gimmick. Serious banks and lenders avoid the use of such designations for their loans.

The reason behind this is that it violates how loans are supposed to be marketed based on the guidelines set by the authorities. In addition, the way these loans were advertised was false. The adverts told customers that they could secure small loans immediately without the lender conducting a credit assessment. This is in direct violation of the Norwegian Legislation that mandates a credit provider or bank to perform a credit assessment for every applicant.

The High Interest Rates of SMS Loans

One problem that people who took these loans soon discovered was that their interest rates were way too high. The interest rates of most unsecured loans, that is credit without collateral, are usually high. Yet, when compared with other unsecured credit, SMS loan was discovered to be very high.

Moreover, you could find yourself neck deep in debt really fast if you default on payment. In such a situation, the interest accumulates quickly and can become a massive problem. This is one reason the authorities clamped down on this type of loan.

credit application

Mobile Loan Cost

As we said, SMS loans do not exist, and have been replaced by mobile loans. While they are similar to SMS loans or SMSlån as the Norwegians will call it, they do not violate the guidelines of the authorities. Banks that offer this credit lend small amounts of money.

Examples of banks that do this include Ferratum Bank which offers a maximum of NOK 30,000, while Folkia offers a maximum of NOK 20,000. 12 months is the maximum repayment for a mobile credit. While they don’t have a high interest rate like SMS credits, theirs are equally high. As a result, people who borrow money using this platform are known to have payment notices.

You can get a lower rate if you borrow more and you select a shorter repayment period. In such cases, it can be said that the total cost of the loan is fair. The reason the interest rates are as high as they are is because these lenders calculate them on a yearly basis. This applies even if you will pay back the money within a month or two.

Dangers of Defaulting Payment

Since the total cost of the borrowed money is negligible especially when you consider the monthly repayment amount, these credits can be repaid easily. Therefore, it’s rare to see people defaulting on a single loan payment. Yet, people still default because they make the mistake of taking out multiple of them.

This problem is further compounded when the person uses their credit card frequently. in such a case, the person could find themselves dealing with several late payments and defaults. This, in turn, can affect them financially and even prevent them from securing future loans.

loan application

Regular Consumer Loan Costs

One reason people consider other options instead of taking out regular consumer credit is that they think those options are cheaper. However, upon closer inspection, you’ll discover the reverse to be the case. For instance, Santander Consumer Bank, Brabank, and Bank Norwegian offers usually range between 5% to 20% for the effective interest rate. The interest rate on the offer you received is determined by:

  • Your Credit Score: With a good credit score, it is believed you can repay the money, which leads to a low rate.
  • The amount you want to borrow: The larger the amount, the lower the interest rate.
  • Repayment period: With a shorter repayment period, the interest will be low. On the other hand, a longer repayment period means a high interest.

So, the effective interest rates for the following loan amounts might be:

  • NOK 20,000: 20% to 30%.
  • NOK 20,000 – NOK 50,000: 15% to 20%.
  • NOK 500,000: 5% to 13%.

How Fees Impact the Effective Interest Rates of SMS Loans

Effective interest rates are usually made up of the monthly installment and origination fee. This is the case for the rates listed above. Therefore, when you borrow a low amount with a high establishment fee, this will increase the effective interest rate significantly.

NOK 900 is considered a normal origination or establishment fee.  Some banks will demand either this exact amount or something close, and the amount isn’t determined or affected by the credit amount. On the other hand, some banks will charge you depending on the credit amount. These are the lenders you should patronize.

Apart from the establishment fee, you’ll pay for monthly installments. It is usually between NOK 40 and NOK 50. Comparing this with an SMS credit from small banks with high rates, you might end up paying between NOK 300 and NOK 400 in establishment fees. The monthly installment fee is about NOK 200.


An SMS loan advertises that customers can send an SMS to the bank, which would process the application and send the requested amount immediately. However, this credit no longer exists in Norway. The authorities banned them for violating the laid down guidelines which include assessing the credit of each applicant.

The mode of application for these credits is similar to what we have when applying for consumer credit. Furthermore, the interest rates used to be very high and led people into debt. Instead of looking for SMS loans, use a more pocket-friendly option such as regular consumer loans.

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