The fact that household debt has risen sharply in recent years is not news. What has mainly been on the wallpaper in this context, however, is the mortgage. Rising housing prices mean a greater need to borrow money, which automatically results in higher general debt.
More recently, the rise in consumer loans has been noticed by politicians and the media. Consumer loans, ie private loans and fast loans, are increasing in both number and size. Interestingly, the increase in private mortgages has a lot to do with the stricter rules on mortgages that have been introduced in recent years.
In this article we will first tell you something in general about the sharp increase in consumer loans. Then we present things to think about for those who are thinking about taking private loans for cash.
Double the growth rate in two years
The fact that there is a very clear link between the liabilities for private loans and tougher rules for mortgage loans is clear when comparing the growth rate of consumer loans between January 2016 and July 2018.
In January 2016, the growth rate for consumer loans was 3.2%. The implication of the figure is that the total amount of SEK lent out had increased by 3.2% compared to January 2015. 30 months later, in July 2018, the annual growth rate was instead 6.1%, according to statistics from Statistics Sweden.
It was precisely in 2016 that the government and the Swedish Financial Supervisory Authority began to impose tougher rules on mortgages and the figures speak their clear language. More home buyers use private loans to pay for parts of the purchase. Above all, it is the cash contribution that is financed with private loans.
Alarm reports on increased debt
If households have large debts, their ability to consume is affected. There is simply not much left in the household budget when repayments and interest are paid. This in turn may lead to households taking even more loans or choosing to consume less.
Both of these consequences are negative for the Swedish economy as a whole and therefore many politicians and leading economists are concerned about the development.
Hot economics give higher debt
The stricter mortgage requirements are not the only reason for the increased indebtedness. Another important factor is that private individuals simply tend to borrow more for consumption in “good times”. It may sound contradictory, but when the economy gets tough, the perception is that you can afford the little extra. It is in the boom, not the recession, that it is borrowed for kitchen renovations, holiday trips and cars.
Borrowing for cash – think about this
Under current rules, anyone who buys a home must pay 15% cash. Anyone who does not have that amount saved, or only part of it, can supplement with a private loan.
The disadvantage of financing with private loans is of course that there is an interest cost in addition to the interest costs for the mortgage. In addition, the private loan will be amortized together with the now compulsory mortgage repayment.
So the first thing to think about is if your finances are robust enough to handle interest payments and repayments month after month. It is very important that you make a calculation and a true budget before you even consider taking a private loan. For those who fail to pay down on their housing costs, it is often the private loan “on top” that puts it off.
3 concrete tips – private loans for cash
If you decide to borrow for cash, there are some things you shouldn’t miss to research and think about.
1. Do you need to borrow the entire amount required?
Every dollar you take in a private loan for cash is extra expensive. If you have the option of withdrawing saved money or possibly borrowing from family members, this is a good solution. Own, saved money is always the cheapest, and if the home purchase is not imminent, it may be an idea to try to save as much as possible before the purchase becomes a reality.
2. Compare interest rates and terms
You can choose to compare up to 100 lenders when applying for private loans and all price proposals will be different. Therefore, choosing the first best lender is never a smart move. When comparing interest rates, you should look at information on effective interest rates and also request representative examples. Often, you can find representative examples in the form of “SEKKI” on the lenders’ websites.
3. Compare all lenders at once
One way to compare many lenders at once and also get ready loan proposals to choose from is to apply through a loan broker. It is a method that is becoming increasingly popular, not least because it saves time. However, you should be aware that you are not guaranteed the very best interest rate based on your circumstances. Respective loan intermediaries cooperate with a smaller selection of all the lenders on the market.