Fast Loans Are Dangerous Without a Savings Plan

The crisis has stretched on, making it increasingly difficult to pay bills. A report indicated that by the end of November, 246,142 citizens were in default, owing 17.3 billion kuna, while many citizens struggle with loan repayments.

According to data from the Croatian National Bank, total loan amounts continue to decline. For the first time, the mass of housing loans in Croatia has fallen, with approximately 100 million kuna more being repaid in a year than was borrowed from banks. It is not surprising that bank clients with loans worth 3.45 billion kuna are irregularly meeting their obligations, writes Tportal.

The only loans that are increasing are in the category of ‘other loans’, which include cash loans and approved overdrafts. In Croatia, citizens have opted for overdrafts amounting to 51.7 billion kuna across 32 banks. This means that an overdraft or cash loan of 12,030 kuna has been approved for every citizen of Croatia. These are the forms of borrowing on which banks earn the most profit. The average interest rate for an approved overdraft is around 11 percent, meaning that on an average overdraft of 12,030 kuna, the bank will earn more than 1,250 kuna in a year.

We have previously written about overdrafts, stating that these are once-spent loans that are paid off over many years, with the principal not decreasing at all, so one should consider whether it makes sense to resort to cash loans instead of such bondage. This is often the simplest and fastest way to access cash, and banks generally have a very straightforward procedure for such loans. In recent years, various banking institutions in Croatia have created promotional offers for fast cash loans, where even the interest rates were somewhat more favorable, making such arrangements beneficial for clients who decided to become a bit more responsible and start ‘living in the black’.

However, cash loans are not cheap and should only be pursued with a plan for deploying the funds, as they can otherwise turn into yet another debt. A group of citizens who owe 7.3 billion kuna to banks in approved overdrafts and cash loans, which they can no longer service, are in the group of hard-to-collect debts, as are citizens from the Fina registry, who may have gotten carried away by combining expensive debts to access cash.

A relative novelty in the market is the withdrawal of cash loans via credit cards. Until now, almost every charge card allowed cash withdrawals up to a certain amount, which was a form of short-term credit, but Zagrebačka banka offers a cash loan via MasterCard with an interest rate of 11.9 percent. Despite the high interest, they are attractive because the money can be obtained in one to two days, and up to 40,000 kuna is approved.

Currently, there is also a significant difference in the terms of consumer loans offered by banks in the market. Specifically, the interest for consumer loans, which can be contracted in stores or at banks, ranges from 8.5 to 11 percent. They were intended for purchasing goods, but recently they have various purposes and can be approved with a repayment period of up to 10 years. Along with the interest, like all others, consumer loans also have processing fees, which can increase the final amount of debt by several percent.

Consumer loans are often linked to card transactions, and statistics show that this form of credit is decreasing. It should be noted that at certain points of sale, there is the possibility of long-term interest-free financing via credit cards. Some stores have agreements for interest-free financing for up to 60 months, so before deciding on a consumer loan, it is advisable to inquire whether there is an option for interest-free purchases.

Before making purchases on credit cards, it is essential to check creditworthiness. Almost all card companies set limits for their clients. This limit is monthly, but there is also a limit on total indebtedness via the card. With the help of customer service, one can easily check to avoid any inconveniences at the point of sale. Creditworthiness decreases if bills are not paid on time, and it is generally completely lost if there are no regular incomes or if one is in account blockage.

Such problems are certainly not faced by diligent savers who, according to the Croatian National Bank, diligently deposit money in banks and increase their wealth. The latest data shows that Croatians have 133.2 billion kuna in term deposits, which is eight billion kuna more than last year. The total amount of savings could have increased on average by four percent in interest, or by 4.5 billion kuna, meaning that in a year up to November, at least 3.5 billion kuna of new savings has flowed in. However, there is somewhat less money in current accounts, approximately three hundred million kuna less than in November 2011.