Gift loans are a common affair for every 17th Czech – about 6% of the population aged 18-75. According to a survey, one in five Czechs has taken a loan to buy gifts in the past. At the same time, indebtedness with insignificant matters is one of the most dangerous cases of financial management.
According to statistics, interest in loans increases by up to 8% from other months of the year in December. This is also linked to the fact that people often borrow more risky loans in December – with too much interest or too high repayments.
This number is inflated by buying goods in installments
This type of financing is very often operated by the non-banking company Good Credit. Normally, this loan is provided at zero interest as an interest-free loan.
For more customers, 20 monthly payments of USD 500 are much more friendly than a one-time spend of USD 10,000. However, problems arise in default and late repayment, when a zero-interest loan becomes a very expensive matter and the individual’s creditworthiness is reduced. Low creditworthiness due to bad repayment history will reduce the possibility of obtaining a new loan with the bank.
On the other hand, the latest statistics for the second quarter of 2019 indicate that the total volume of debt of the Czech population is increasing, but people are better off repaying. Both short-term and long-term loans.
Creditworthiness is influenced not only by income
If someone is late in the payment, this will be recorded in their registry. Up to one-fifth of people give reasons for the Christmas loan long – term lack of finance. In this case, the debt to buy gifts seems very risky. Although the loan for gifts can be much smaller – for example, as a small microloan, if the family does not have enough repayment money, even a small loan will multiply by extremely high interest. Taking into account the fact that every tenth Czech is confronted with execution, this can be a very unnecessary route to possible execution.
Generally, one should not indulge in debt. Often people borrow money for holidays, which, while bringing unforgettable experiences, is not worth building up debts.
On holiday and other more expensive things, it pays to save – eg through savings accounts or building savings. By postponing even a few hundred crowns a month, a relatively good financial reserve can be made within a few years. This reserve can then be used for these matters
With gifts, this is more problematic, especially if a person has children waiting for a lot of gifts, usually even more expensive. In this case, the first step should be to ask family members or friends for a small loan or to explain to the children that they cannot afford expensive gifts as a family now.
Gift indebtedness is very risky
As it often affects people with pre-existing debts or permanent financial problems. Gift lending can make their situation even worse. Once the debt has accumulated, it can be difficult to keep track of it and interest becomes a burden on the family budget.
The riskiest case is repaying loans with new loans – the so-called debt spiral, which never ends well.
People in this situation should think about loan refinancing or debt consolidation. By unifying their loans into one big one, the administration and the overall interest will be reduced, which will reduce the monthly payment. This will free up the family budget and allow for small savings and financial reserves.