ECONOMY

Consumer credit revolution

The deregulation of consumer credit, which began on July 1, was the missing piece in the domestic banking sector’s long process of maturation. It will bring tangible benefits to households. These will be twofold: First, household credit, at present short-term, will become medium- to long-term and therefore monthly installments will be lower. Second, clients with a good credit rating will be able to borrow more. The consumer credit market is expected to change considerably in the coming months, with competition among banks heating up as they begin to offer a new range of products and, most likely, lower rates. Henceforth, loan terms, amounts, duration and even interest rates will not be uniform, as was the case with so-called personal loans (limited to 3,000 euros) and consumer loans, up to 24,000 euros. The creditworthy customer will be able to borrow higher amounts at a lower interest. Perhaps the most important news for old clients is that they will be able to renegotiate their loan or loans – including, quite likely, their credit cards – on a more long-term basis. This will enable them to collect different loans from different banks and merge them into a single loan. Instead of being obliged to repay the loan within two years, borrowers will be able to extend the payment period to four, five, even six years. Thus, monthly installments will be half, or even less, of what they used to be, making the repayment burden much lighter. Interest on consumer loans dropped from 20 percent to 12 percent between 2000 and 2002. In 2000, loans to households represented 13.6 percent of total private sector financing. In 2002, their share rose to 22.6 percent.