The past few years and months have been difficult. The corona crisis, war and inflation have brought uncertainty. But it is precisely in these difficult times that it is clear that the Germans still treat themselves to something. According to a survey, consumer goods are currently increasingly being bought with an installment loan. But that involves risks.
A new television, the mobile home that people have been raving about for years, or a trip to distant countries: Germans are treating themselves these days. But they don’t use the savings account for that. Almost a third of Germans have fulfilled small or large consumer dreams or with the help of an installment loan in the past five years. The younger ones in particular have discovered borrowing for themselves.
According to a representative Postbank survey, 32.7 percent took out an installment loan during this period. In 2014 it was only around 21 percent, reports “ Welt am Sonntag ”. Around 43 percent refused to take out such a loan at the time. In 2022, this group will shrink to around 31 percent.
As the survey also shows, most of the money from installment loans goes into a car, renovations or new home furnishings. “After two years of the corona pandemic with its restrictions in many areas of life, the consumer mood has increased significantly and is more often financed by an installment loan,” said Jan Wiedei, head of daily banking at Postbank, the newspaper.
Larger purchases are usually still financed by installment loans. But Germans are also increasingly buying new mobile phones (167 percent), clothing (370 percent) and Christmas presents (240 percent) in this way. About five percent also finance their vacation trips with the help of a loan. This affects eight times more Germans than in 2014 (0.6 percent).
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One in four respondents (25.3 percent) aged 18 to 24 buys clothes and one in eight (12.7 percent) finances a trip with an installment loan. Almost every sixth (17.4 percent) younger person uses this to finance their hobby.
However, this often backfires and borrowers quickly fall into the debt trap. The risks on the borrower side include flexible interest rates. These make it difficult to plan money within the period in which the loan must be repaid. Caution is advised here. Anyone who miscalculates and cannot repay can quickly drive up their borrowing costs.
You should also always keep an eye on the economic situation. Inflation in particular, which is currently 7.5 percent in Germany, ensures that money loses value. If money loses value, then loans also lose value. Borrowing money can quickly become really expensive. Rising inflation then causes the real interest rate for installment loans to go negative. A loan should only be taken out if it is really needed, consumer advocates recommend with a view to the current situation.
The combination of flexible interest rates and the economic situation can lead to over-indebtedness. This often ends in personal bankruptcy. Residual debt insurance can offer protection against the debt spiral. For example, if you become unemployed or become seriously ill, this insurance will take effect. In addition, debt counseling centers can be the first point of contact in the event of a difficult financial situation.
Consumer advocates recommend refraining from financing annual vacations or short-term investments with the help of an installment loan. Saving is the first choice here. In addition, you should refrain from such a loan if the monthly burden on your own financial framework through the loan is more than 15 percent of the household budget.
On the other hand, it makes more sense to invest in installment loans in durable goods. Like a car or a new kitchen. When purchasing electrical equipment, it is recommended to compare the loan term with the useful life of the device. If possible, the television should still work after the loan has been paid off.
