Consumers are increasingly using small loans for purchases on credit: the number of installment loans is increasing significantly, as a current Schufa study shows. “Buy today, pay tomorrow” is tempting – but also risky.
Why wait when you can have something now? From the point of view of many consumers, the motto “buy today, pay tomorrow” is an offer that they cannot refuse, especially since the financing is often advertised as being free of charge. And they use it: The number of newly concluded installment loan agreements in Germany rose rapidly last year, according to the credit agency Schufa: there were a good 9.1 million agreements, which is 30 percent more than in the previous year.
A good 3.8 million of the 9.1 million new contracts last year were small loans under 1,000 euros, according to the Schufa “Risk and Credit Compass” published today. A year earlier, the credit agency had counted just over two million new degrees in this category. On average, consumers borrow 356 euros in such cases, a year earlier it was 398 euros. For the first time, the proportion of microloans was larger than the proportion of newly concluded loans for amounts of more than 10,000 euros.
Schufa warns
“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 show that because of the general increase 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.
Rapid growth in young people
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 1,000 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.
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 “heavily” 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.”
Installment loans significantly more expensive
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. Over the year, that’s a 55 percent increase in price.
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.
Credit stimulates the economy
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.
over-indebtedness decreases
According to Statista, the number of over-indebted private individuals in Germany fell for the fourth time in a row last year. In 2022 it fell to the lowest value since the evaluations began in 2004 to around 5.9 million citizens over the age of 18. According to the information, around 3.6 million of the over-indebted people are men. According to this, more than ten percent of men over the age of 18 in Germany are considered over-indebted or at least have persistent payment problems.