Inflation Fuels Popularity of Credit Cards

Purchasing and repaying with credit cards is simple – there are no additional fees for loan approval, no guarantors or co-borrowers are needed, nor other security instruments. The loan is realized immediately at the point of sale, only a signature on the consumer credit agreement is required.

Written by: Gordana Gelenčer
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In the absence of cash for current payments or some future larger obligations, we increasingly turn to credit card loans. These loans are quick, simple, without extensive procedures and complicated security instruments; it is usually enough to show the card and ID at the bank, and the money is already in the account. Moreover, banks often offer such quick loans to clients themselves, meaning the loans are pre-approved. It is up to the client to weigh such an offer against a credit card or a cheaper, but procedurally more complicated cash loan. Data from the Croatian National Bank shows that credit card loans have a small but stable share overall, although in the first seven months of this year, a trend of more pronounced growth is already emerging, likely due to inflation and the need to quickly and easily bridge current obligations.

No Interest and Fees

Zagrebačka banka offers its clients a non-purpose cash loan via Mastercard card of up to 40,000 kuna with a repayment period of two months to two years, depending on the loan amount and an interest rate of 12.5 percent (effective 16.26 percent). The loan is approved without guarantors, co-borrowers, or any other security instruments. No additional documentation is required for the realization of this loan other than an ID, they say at Zaba. Mastercard users with deferred payment have access to consumer credit at all sales points in Croatia marked ‘Consumer Loans up to 36 months’. Owners of this card have access to loans from 1,000 to even 60,000 kuna with fixed interest rates of 11.9 percent. Purchasing and repayment are simple – there are no additional fees for loan approval, no guarantors or co-borrowers or any other security instruments are needed. The loan is realized immediately at the point of sale, only a signature on the consumer credit agreement is required. Additionally, users of the go! credit card, Mastercard with deferred payment, and Visa Avenue Mall credit card have the option of using installment payments of up to 60,000 kuna, without interest and fees, for a repayment period of up to one year at sales points with which the bank has contracted such a payment method. Zaba states that this is currently the most favorable way to finance with credit cards.

At PBZ Card, owners of American Express personal charge and delayed debit cards and users of Amex business cards have access to consumer loans ranging from 1,000 to 100,000 kuna with repayment from three to 60 months at an interest rate of 9.98 percent. These loans can be used for purchases at more than seven thousand sales points in Croatia. In addition to consumer loans, owners of these cards can also realize cash loans. They can withdraw from 5,000 to 50,000 kuna, which they repay over up to 48 months. The interest is 10.98 percent, with the effective interest rate varying depending on whether the money is disbursed to the card or to the current account, ranging from 11.61 percent to 12.83 percent. They say that installment payments are more frequently used for lower-value goods for up to 12 months, without interest and fees, while cash loans are taken when payment cannot be made by card. Revolving loans offered by both Amex and Mastercard and Visa cards are also in demand, with amounts for Master and Visa limited to 40,000 kuna, and for Amex to 60,000 kuna. For the collection of cards from the Amex group, revolving loans range from 9.98 percent to 13.98 percent, while those from the Mastercard and Visa group range from 11.98 to 13.98 percent. No special guarantees are required for the approval of these loans, but they claim that when assessing credit risk, they take into account the uniqueness of each user and their spending and payment habits. Employment and stable income, existing debt, and regular repayment are the basis for credit assessment. They expect that by the end of the year, placements via credit cards will increase by about 10 percent.

Greater Availability

Clients of Raiffeisen Bank can shop at about five hundred sales points, where they can divide their debt into two or 36 installments, borrowing from 700 to 30,000 kuna. Two revolving credit cards are offered – Mastercard and Visa, where clients are required to pay five or 10 percent of the debt (at least 150 kuna) monthly, with an interest rate of 12.5 percent. Erste Bank also offers clients only revolving credit (no cash or consumer loans via cards). This year, according to data up to August, it approved 650 million kuna in revolving loans. The average utilized revolving loan in August last year was 5,056 kuna, and this year it is 5,382 kuna, indicating a slight increase in borrowing via credit cards. A card credit is available for Diners cardholders, which allows them to purchase in installments for up to 12 months at an interest rate of 12.15 percent. After six months of membership, Diners members can request a Diners Plus card, which allows them to automatically purchase in installments for 12 months, costing 12.99 percent.

Hypo Bank currently issues only revolving credit cards to its clients. The bank states that, as a rule, the card user can use the credit until its expiration, as long as they are a regular payer. The bank can then extend the repayment terms or extend the card. Interest rates range from 12 to 14 percent, and the loan amount depends on the client’s creditworthiness. Currently, for the Mastercard revolving card and loan, no security instruments are required, as it is linked to the current account of citizens, so security instruments are already ‘built-in’ to the current account. They say these cards are equally interesting to everyone, so all clients are equally represented. Cards are otherwise approved for creditworthy clients, based on the assessment of their creditworthiness. They report an increase in the number of revolving cards. Since cards are a medium that increases the availability of credit (spending domestically and abroad) and provide certain flexibility, as the client determines the repayment method and spending dynamics, loans via cards are in many cases more interesting to clients than traditional loans. Interest rates on these types of loans are slightly higher than those for traditional loans, although this does not necessarily mean a more expensive product, as the client determines the dynamics of loan repayment, and interest is calculated and attributed on a monthly basis. If the total amount of spending is repaid within a month, interest on transactions at sales points will not be charged to the client.

Like Cash Loans

The crediting of card users at HPB is based on issuing Mastercard revolving cards for citizens and Visa Bonus Plus cards for business clients. Users of these cards have a permanently approved credit limit. Among other things, they offer service packages such as HPBebe, HPB Diplomac, or a service package for Croatian veterans. The use of these packages also allows for obtaining a card loan. The interest for the Mastercard revolving credit card is 12 percent, and for the Visa bonus plus card, it is 12.49 percent. Although all age groups use this type of credit equally, the bank states that clients under 40 years of age use larger loan amounts. The decision to issue a card to citizens is made within a few minutes, while due to the specifics of doing business with business clients, it takes a few days. The most popular is clearly Mastercard – of the total number of issued Mastercard cards, 65 percent are revolving credit cards, confirming the trend of increasing interest in this type of crediting, at the expense of ‘ordinary’ cards with deferred payment, they say at HPB. Perhaps also because, as the bank claims, these loans are not significantly more expensive than cash loans (measured by the effective interest rate), especially if the cardholder uses their card for paying goods and services, i.e., for transactions that are not subject to fee charges. Their advantage is primarily that loans via cards are automatically renewed and are available to users according to their needs, they conclude at HPB.