Study: Use low interest rates or avoid loans

The ECB’s current policy of low interest rates means that you also receive bank loans at unusually low interest rates. Nonetheless, German consumers are more likely to be among those who are reluctant to borrow, or who are reluctant to borrow for specific purposes. In doing so, they largely follow the advice of most consumer advocates who are critical of consumer credit. The payment by credit card is also classified according to banking criteria as – although free and short-term – borrowing. However, most credit card holders do not consider this method of payment to be borrowing, even though later debiting of the monthly bill prevents a temporary negative balance in the bank account. Most credit card holders will only talk about a credit card if they have activated the installment payment function. Their use is in turn not advisable, because the interest on a credit card account is even higher than the debit interest for the repayment credit of the current account.

What do German households borrow for?

German households borrow mainly for the purchase of a motor vehicle and for the purchase or construction of home ownership. Consumer loans, on the other hand, tend to be skeptical, meaning that they are much less widespread than in the US. Skepticism refers primarily to bank loans, while customers often do not perceive the installment agreement with the merchant as a loan, but classify it as a special form of payment. In a survey, only thirty percent of participants said that they rated the installment as a credit option.

With consumer credit restraint, German consumers are following the recommendations of most consumer advocates who recommend borrowing only for the necessary purchases of durable consumer durables. The EOS debt study shows that more than seventy percent of Germans believe that many people are in debt. On the other hand, only six percent of the survey participants regard debt as normal, while most residents of the Federal Republic perceive it as an emotional burden. In addition to Germany, the investigation was conducted in the US and Russia, with the inhabitants of both countries having a much more positive view of borrowing than German consumers. However, Americans borrow less often than residents of other countries for the renovation of their homes or apartments. Another finding from the survey is that, despite the fundamental concerns about borrowing, more than seventy percent of all respondents have already repaid at least one loan. The apparent contradiction between the feeling and the actual borrowing can be easily resolved: the latter was in most cases for larger purchases such as motor vehicles or home ownership. For these purposes, most Germans allow borrowing without feeling the debt as an excessive emotional burden.

Rescheduling or credit summary is always worthwhile

The low lending rates do not apply to existing loan agreements and are not granted by most financial institutions for provisioning loans. For this reason, the rescheduling of existing expensive loans and above all the replacement of the disposition credit by a installment loan is recommended. Although most banks make offers to their clients, many account holders do not take advantage of the opportunity to save money. This is because the negative balance on the checking account is often not perceived as indebtedness and triggers little or no emotional burden, as there is no obligation to repay and most accounts have a short term credit after the monthly salary transfer. Nevertheless, the inclusion of an installment loan for repatriation of the discretionary credit is advisable for economic reasons. Take advantage of the opportunity to replace old loans and benefit from new, improved interest rates with up to 50% rate savings through the loan comparison.

Which debtor types are currently available

Consumers can basically be classified into five types of debtors. The debt collector does not borrow, but saves on the purchase. The carefree resembles the debtor, but accepts a negative balance on the checking account and is above average often willing to make installment payment arrangements. Occasional debtors accept borrowing for reasonable purchases and repatriate their liabilities as soon as possible. The real estate debtor accepts a debt for the purchase of home ownership in purchasing. The individual debtor types rarely exist in their pure form. Thus, real estate debtors are often at the same time occasional debtors. In addition, even a debtor must take out a loan in individual cases, whereby he feels uncomfortable. The fifth category of the debt junkie includes individuals for whom debt is perfectly normal and who face over-indebtedness due to their low self-control.

Absolute debt avoidance is economically questionable

The absolute rejection of one’s own debt is economically questionable and can lead to unnecessary additional costs. An easy-to-understand example of meaningful borrowing is the need to replace a defective washing machine. If households refrain from replacing them, the necessary use of the laundromat will incur additional costs that exceed the interest cost of a loan in a short time. In addition, a certain level of debt is essential to stimulate the economy. If consumers are unwilling to finance purchases on credit, manufacturers and traders will not sell enough products for the targeted economic growth. Ultimately, too much debt avoidance can cost consumers jobs. Last but not least, lending is one of the classic sources of income for financial institutions, so that a lack of demand for loans leads to a worsening of the banking crisis. The time of extremely cautious lending has been overcome, meanwhile, most financial institutions are again massively promoting their loan offers and are showing generous credit approval, with risk management becoming increasingly popular with credit-based interest rates. When you take out a loan, you support the economy more than if you avoid debt consistently.