We people are probably not the only ones in the world who are happy to borrow money, but just in recent years consumer loans have gained a very special place in people ‘everyday economy. We believe this because the amount (and total debt) of consumer loans is increasing every single year, and changes in this market are constantly being seen to respond to demand. Many banks and investors have been rich in consumer loans, but how do we actually manage today with these loans?
How much do people owe in consumer debt?
Firstly, the total consumption debt of the people is increasing. In 2016, it had increased to almost 90 billion dollars, with the average consumer loan amounting to around 140,000 dollars. This is a growth compared to the past, but overall consumer debt accounts for only 3 per cent of the total household debt to people . This is mainly due to the fact that home loans – and the size of these – have also increased significantly in recent years, so that consumer debt does not make the big impact purely in percentage terms.
Nevertheless, the Financial Supervisory Authority is concerned, as consumer debt is growing both rapidly and rapidly. The regulations on consumer loans and advertising for this have not changed much in recent years, and consequently many experts believe that things must be done here to reduce people ‘consumer debt.
Want stricter regulation of consumer loans
Among other things, they require changes in how consumer loans are regulated. As of today, there is no debt register, which in practice means that no banks have an overview of how much you have recently taken up in consumer loans. This comes only when next year’s tax return is completed. In other words, you can easily take out several consumer loans in different banks over a certain period of time, without any idea that you have done so. For ordinary income it will be quite problematic to raise loans of between one and two million in just a few hours, by applying for consumer loans in several banks.
It is this practice the credit manager – and probably several other financiers – wants to get rid of. This means, among other things, the tightening of who should receive consumer loans, and that one must make it more difficult to apply for such loans. Proposals have also been made for advertising bans on consumer loans, and that banks must play with more open cards to customers about what the risk of taking out such loans actually is. Since the turn of the millennium, people ‘debt has quadrupled, so there is definitely no shortage of “evidence” that it may now be time for some change. Although it is primarily people’s own responsibility not to incur too much debt, the experts also believe that the banks have some preventive responsibility here against their customers.
More and more people are struggling with money problems
As one reads that the total debt increases, so does the proportion struggling with money problems due to consumer debt. Surveys from the end of 2016 show that about seven per cent of households have problems processing their debt. The statistics do not only include consumer loans, but this is probably an important part of precisely these payment problems due to the high interest rates these loans often have. The economy in the country has been weak in recent years, which has made it much easier to get consumer loans thanks to a low interest rate level.
The interest rate on consumer loans rarely increases very much during a loan period, so that one can have a fairly predictable repayment on these loans. However, it is different for mortgages, where interest rates can change quite a few percentage points over a few years. And with the size of many mortgages, this will quickly cost a little extra a month if you experience a rise in interest rates. Perhaps this will again mean that you do not get enough money to pay the consumer loan – since the mortgage must be given priority if you still want to get your head around. Therefore, it is extremely important that you do not incur too much debt in either form, so that you actually have some extra room for interest rates or other factors that can affect your finances. Never borrow more than you need!