Cut of up to 30% in charges from credit cards and penalty interest

If it were late November, then some borrowers would receive a note from the bank that the interest rate is falling and that penalty interest is being cut. Some others will continue to receive the same inflated statements.

This change is due to two new caps being introduced in consumer credit. One places a “ceiling” on total charges (interest rate and fees) and the other a “cut-off” on the borrower’s final burden in relation to the initial principal.

This concerns the incorporation of European Directive CCD II (EU 2023/2225) on credit agreements for consumers, which has now been incorporated into our national legislation with Law 5317/2026 and will come into force on 20 November.

The new legislation radically expands the umbrella of protection, abolishing the minimum threshold of 200 euros and now covering credit from zero euros up to the amount of 100,000 euros. Key to its implementation is the publication by the Bank of Greece of the total annual percentage rate of charge APR by category of consumer credit products.

We took the latest available data from the Bank of Greece with the nominal interest rates and all charges per product and calculated the total annual charge. Then, based on the law, we calculated the range of the APR caps.

Our aim was to see whether the caps will reduce charges in consumer credit or whether the caps are higher, in which case there is a risk that the total cost for the borrower will rise, especially in a period of rising interest rates. We also could not leave out of the discussion the view of banks and microcredit companies.

Key conclusions

The following key conclusions emerged from the analysis of the data and the research:

• Difference between interest rate and APR: The nominal interest rate and the total annual percentage rate of charge (APR) may differ significantly. For example, a loan of 500 euros with a 0% interest rate for one year, but with application review fees of 80 euros, leads to a total annual charge that shoots above 16%. This happens because fixed administrative fees burden small amounts disproportionately, proving that the real cost is often hidden in side commissions.
• Targeted “cut”: The “cut” in interest rates in consumer credit is not horizontal. Mainly “threatened with cuts” are fast loans from mobile phones, overdrafts and cash withdrawals from cards. In cash withdrawals, the APR reaches in some cases 48,18%, while the estimated cap will range between 28% and 32%, imposing noticeable reductions.
• The second cut-off: The “cut” may come from the second cut-off concerning the cap on the final repayment principal. Even if the total interest burden is below the cap, some overdue debts that accrue expensive interest create a mountain of default interest. If the total cost of credit exceeds the institutionalized limits in relation to the initial principal (e.g. +60% for 4-year loans or +70% for 5-year loans), then the automatic write-down of the debt is activated.
• Impact on BNPL and microcredit: In the cases of microcredit and “Buy Now Pay Later” (BNPL) services, the new limits reshape providers’ pricing policy, as file and management fees are mandatorily counted in the APR, compressing charges that exceeded 34%.
• Consistent borrowers: Consistent borrowers who repay the full balance of their credit cards within the grace period will see no difference. However, for those who carry a balance, the new cap offers a safety valve, although there is a risk of the “anchoring effect,” where banks may keep the interest rates of consistent customers close to the upper limit.
• Loans with collateral: For loans with collateral (mortgage pre-notation or pledge), the law remains essentially inactive, as their interest rates (2,50% to 9,65% with APR up to 13,61%) are already noticeably lower than the institutionalized caps.
• Strengthening transparency: Transparency is institutionally strengthened, as borrowers are mandatorily informed pre-contractually about the total cost, while mandatory creditworthiness assessment (Article 22) is imposed even for very small amounts.

The institutional framework

The law provides that the minimum threshold of 200 euros is abolished, now also bringing microcredit (micro-credits) into the protective framework. Credit cards, overdrafts and the new digital “Buy Now Pay Later” (BNPL) services are explicitly included. Also, mandatory assessment of the consumer’s creditworthiness is established even for very small amounts (100–300 euros).

Impacts

According to banking executives, the number of approvals will decrease, as there will be no possibility of granting a loan with an increased interest rate due to a risk premium, provided that the credit criteria and the rules of responsible banking are met. This is the phenomenon of credit rationing, where applications from consumers with a higher risk profile are rejected.

Microcredit companies and those offering BNPL services or supporting (together with banks) directly or indirectly interest-free installment programs in retail agree with this. Nevertheless, new disbursements through interest-free installment programs and BNPL or microcredit are estimated by industry representatives to increase this year by about 30%-35% compared with last year, that is, to exceed 400 million euros.

Already, net flows in consumer credit (new disbursements minus repayments) had amounted from the beginning of the year until the end of July to 327 million euros, when the corresponding figure in housing credit was 76.6 million euros.

Loan examples

Let us now look through examples at cases that benefit from the new regime, cases that are on the threshold and the cap catches them under conditions, but also those for which probably nothing changes:

Case that benefits

Account overdraft and cash withdrawals from cards: A consumer with an overdraft limit of 1,000 euros, an interest rate of 18%–21% and monthly maintenance fees is currently burdened with an APR above 24%, while in cash withdrawals from credit cards the APR shoots up to as much as 48.18%. With the new APR cap (estimated between 28% and 32%), the bank is obliged to compress the total charge, proceeding to an immediate interest rate reduction or abolition of fixed charges.

Case on the threshold

Digital Microloan €1,000/BNPL: In a digital microloan with a duration of 6 months with a nominal interest rate of 0% but one-off fees of 30 euros, the APR is calculated at 31.20%. Because the estimated cap is set at 22%, the law works correctively, forcing the provider to compress the fees to 18 euros. Correspondingly, in mobile loans of 5,000 euros (36 months, interest rate 13.90%, fees €190, APR 18.90%), the cap (18.50%) imposes a reduction of the fees to 120 euros.

Case where nothing changes

Personal loan — Loan with collateral: For a consistent borrower with a personal loan of 10,000 euros or a car loan (APR 10,45%–13,03%) or a loan with mortgage pre-notation (APR up to 13,61%), the changes are negligible, as their interest rates are already noticeably lower than the institutionalized caps.

Consistent borrowers

For those who service their debts normally in products such as personal loans or car loans, the changes will be imperceptible to negligible. As these products move with an APR noticeably lower than the upper limits, the impact remains limited.

For those who repay on time, the main benefit comes from competition and enhanced transparency. With the mandatory pre-contractual disclosure of APR, banks will be forced to rationalize their commissions.

Non-performing loans

The second “cut-off” concerning the final burden is decisive for loans that are in arrears. With Article 44 of Law 5317/2026, compound interest is explicitly prohibited and the imposition of default interest on certified interest or expenses. Default interest is now calculated exclusively on the overdue principal, while the total debt cannot exceed the cap, that is, the established limits in relation to the initial principal.

This is expected to facilitate settlements through the out-of-court mechanism as well, as the maximum debt limit will now be legislatively guaranteed. At the same time, the new settlements that will be signed after 20 November are considered new contracts and are mandatorily subject to the new protective caps, even if the initial loan had been concluded earlier.

Banks and businesses

Banks benefit from the rise in interest rates as net interest income increases, while they can pass on any other “lost” income to the pricing of other products and services, so that the loss is spread and offset. The pressure they receive from the new caps in consumer credit will most likely be offset by the increase in commissions in other banking operations or by the reduction in risk cost, as the stricter criteria will limit bad debts.

On the other hand, many microcredit companies, but also small and medium-sized businesses, will face a new framework. These businesses will be obliged to become more competitive and improve creditworthiness assessment procedures, as they will no longer be able to cover losses from bad payers through excessive charges on the remaining customers.

In conclusion, the new legislation brings a balance to the consumer credit market, protecting the borrower from extreme charges, while at the same time laying the foundations for more responsible lending. Although access to easy money may be limited for certain high-risk categories, the overall market is expected to become healthier and more transparent, with the new caps functioning as a safety valve against over-indebtedness.