Monday, September 25, 2023

Summer and inflation trigger consumer credit

Families have resorted to savings and consumer credit to go on vacation and combat inflation, while at the same time banks have made short-term loans more expensive to levels similar to credit cards.

The economic situation of households has improved and the purchasing power lost since 2021 is increasingly recovering. Nevertheless, more and more families are applying for quick loans to go on vacation or to finance fixed monthly costs. Increased consumption and rising prices due to inflation are eroding household savings accumulated during the pandemic.

The Bank of Spain (BdE) report on the financial statements for last July shows that financing through consumer credit increased significantly between June and July. Specifically, it has increased by 2,000 million euros, reaching a historic high not seen since 2009.

In this context, the banking sector expects that the end of summer will prompt many families to request more financing, due, among other things, to the return to schools, institutes and universities, which will further stimulate consumer lending business. And this despite the fact that this type of financing has become significantly more expensive in recent months.

Banks continue to make consumer loans more expensive

The contractionary monetary policy adopted by banks in recent months is aimed at reducing inflationary tensions in the economy. This leads to an increase in mortgage and borrowing costs for businesses, but also affects lending to households affected by rising consumer loan interest rates.

All in all, and the sharp decline in the issuance of mortgages – 14% fewer home loans were signed between January and June 2023 than in the same period last year – the bank granted loans worth 15,289 million euros in the first half of the year in consumer loans in the golden goose of the lending business.

The association of financial users Asufin warned that consumer credit in Spain is not hitting the brakes and is becoming more expensive, with the average increase in interest rates exceeding 13% in July. And this type of financing has become significantly more expensive in recent months, reaching an average interest rate for short-term loans of 17.42% in August. However, the popularity of consumer loans shows a similar trend to that in the past, also due to high inflation.

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Nation World News Desk
Nation World News Desk
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