“Buy Now – Pay Later”: Shopping on credit is popular. In most cases, installment loans are repaid on time. But the trend towards smaller and smaller loans is not without its risks.
Buy today, pay tomorrow – a tempting offer from the point of view of many consumers, especially since the financing is often advertised as being free of charge. The credit agency Schufa found that the number of newly concluded installment loan agreements in Germany rose “rapidly” last year: a good 9.1 million agreements were 30 percent more than in the previous year. The majority of these loans are repaid in accordance with the contract. However, the general price increase is putting pressure on many people’s budgets.
According to Schufa, the trend in installment loans is towards small loans under 1000 euros. Four out of ten (42.6 percent) of new contracts in Germany are now in this area. On average, consumers borrow 356 euros in such cases, a year earlier it was 398 euros, according to the Schufa “Risk and Credit Compass” published on Tuesday.
A good 3.8 million of the 9.1 million new contracts last year were small loans under 1000 euros. A year earlier, the Wiesbaden-based credit agency had counted just over 2 million new degrees in this category. For the first time, the proportion of microloans was greater than the proportion of newly concluded loans for amounts of more than 10,000 euros.
Financial overload warning
“Even the repayment of many small loans can quickly lead to financial overload,” warned Schufa board member Ole Schröder. Most of the installment loans are paid back in accordance with the contract: As in the two previous years, according to Schufa, consumers reliably serviced their liabilities in 97.9 percent of the cases.
However, surveys showed that because of the general rise in prices, “many people’s financial reserves have now been used up,” Schröder explained. Wage increases have long been eaten up by inflation, which has meanwhile reached record highs. The proportion of those who received repeated reminders for payments, for example, increased slightly in the Schufa database compared to the previous year from 4.7 to 4.8 percent.
According to the findings of the Schufa, younger people in particular are increasingly using the option of paying off purchases in online shops, for example, in installments. The number of small loans under 1000 euros running on December 31, 2022 has increased in the Schufa database, especially in the age groups from 20 to 39 years. Here the growth compared to the previous year was more than 50 percent. The growth was greatest in the group of 20 to 24 year olds with 58.5 percent.
Schufa: “Exact calculations are hardly done here”
Consumer advocates urge caution: “Zero percent financing does not automatically mean that you buy the goods yourself cheaply – they can be much more expensive than from other providers,” warns the North Rhine-Westphalia consumer advice center. The Stiftung Warentest also points out that installment loans are sometimes “heavy” more expensive due to fees and residual debt insurance.
The Schufa writes: Anyone who shops on the Internet wants to buy quickly. The financing offered there seemed cheap due to the small amounts. “Exact calculations are hardly done here.”
The interest rates, which have risen sharply since last summer, have also made installment payments more expensive: Anyone who took out an installment loan via the comparison portal Verivox in August of the current year has to pay an average interest rate of 7.35 percent. In August 2022, borrowers received their loans at an average interest rate of 4.75 percent – a whopping 55 percent increase over the year.
Banks continue to expect demand
According to estimates by the credit banks in Germany specializing in the financing of consumer and capital goods, demand for consumer loans will nevertheless continue in the coming months. “In the next twelve months, private individuals will use loans to buy consumer goods to a comparable extent as in the past twelve months,” the banking association predicted at the beginning of August.
Last year, the demand for consumer credit increased again significantly after two years of the Corona lull. The institutes organized in the Banking Association granted new loans totaling EUR 56.6 billion to private customers alone, 7.3 percent more than in 2021.
The managing director of the banking association, Jens Loa, argues: Especially now that the price level has risen in general and people are reluctant to make purchases, “financing offers are essential to boost the economy”. The association expects constant demand for credit over the next few months: for example for a new car, a new kitchen or a new television.
Source: Stern
