NPL&REO News

Households prefer to take out credit and get into debt rather than not go on holiday

The number of short-term consumer loans has increased by almost 8%. These holiday loans, according to experts, are dangerous because of their high interest rates and because they are not thoroughly analysed by the consumer.

The tightening of monetary policy is causing interest rates on consumer loans to rise. Spanish banks have raised the rate on these loans to over 10% in barely a year. This has not stopped Spaniards from financing their holidays. Between paying more for a loan or not going on holiday at all, citizens have a clear preference. Almost half of those surveyed by Amadeus for its report ‘Consumer Travel Spend Priorities 2023′ consider travelling a priority expense. BNP Paribas’ Cetelem observatory confirms this trend in Spain. Going sightseeing is among the top two options in purchase intention in July for the next three months, along with fashion and sport.

According to the latest data on the amount of outstanding balances provided by the Bank of Spain, €45.868 billion were requested in short-term consumer loans, 7.9% more than in June 2022. Around 10% of this type of credit for up to one year is dedicated to travel, according to the Financial Users’ Association (Asociación de Usuarios Financieros). Therefore, in June 2023 around €4.5 billion have been granted for holidays in Spain. Moreover, as Antonio Luis Gallardo, head of research at Asufin, points out, holiday loans have been gaining in importance for three consecutive years; it is not a cyclical or recent trend, as it predates the pandemic. Other destinations for these loans are works and renovations, studies, vehicle purchases or treasury.

However, financing holidays is a risky action for the financial health of families. “The main problem with this type of loan is that they are not usually very well thought-out loans,” says Gallardo. Loans for tourism purposes are usually not made through a bank, but are often taken care of by the travel agencies themselves. This means that the consumer does not analyse the conditions, nor does he or she compare with other entities.

In addition, interest rates are almost always higher than those of financial institutions, about one or two percentage points, and there is a tendency to pay them in cheaper instalments, which leads to a higher and more lasting indebtedness. “There can be a snowball effect, and suddenly the next trip, back to school or at Christmas, we find it difficult to finance”, adds the head of Asufin.

Besides, the amounts of loans being borrowed are higher, mainly because tourism spending is increasing due to inflation. Observatur reported an increase of €15 per person, reaching €625 during their holidays. CaixaBank also recorded a year-on-year increase in tourist spending in June (+5.7%), which also suggests a certain slowdown in growth in the sector – the lowest rise since spring 2021.

Original Story: Cinco Dias | Samuel Pérez
Photo: Photo by Pablo Rodríguez from FreeImages
Edition and translation: Prime Yield

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