October 20, 2020

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Starting today, lower interest rates for installment purchases: “It helps a little”

Starting today, lower interest rates for installment purchases: "It helps a little"

“It helps a bit, but if you can’t pay 14 percent interest, you can’t pay 10 percent either,” says Auke Schouwstra of the NVVK Debt Advisory Association. Consumers and lenders should take their own responsibility and check that the interest and repayments are not too high in relation to their income, he believes.

According to Joke de Kock, debt relief manager at Tilburg Municipality, it doesn’t matter how much interest is charged, as these types of loans are often relatively small in amount. “Suppose you buy a washing machine for 500 euros and the interest is 14 percent. Then you pay 70 euros in interest. People can pay 10 installments, that’s 7 euros more per month. With 10 percent that’s 5 euros per month. That won’t make a difference. “

She also sees few people who are really in debt as a result of these types of loans. “Most of the debt we see is residual debt from the previous crisis, surcharges to be repaid to tax authorities, health insurance, telephones, rent and energy bills.”

If people run into big debts as a result, it won’t be for years, says De Kock. “If you always buy in installments, with new long payment methods, then at some point it no longer fits your budget and you can run into problems. But that doesn’t happen when you have to buy a washing machine.”

Social Credit Banks

Schouwstra of the umbrella organization of debt counselors says this measure can be harmful to financially disadvantaged people. Finally, social credit banks are also affected by this measure. “People who have nowhere else to turn can still take out a loan there. For example, so that a car can drive to work.”

These banks sometimes charge the statutory maximum interest rate, which is now 10 percent instead of 14 percent. “The money has to come from somewhere. We hope that the government hits these banks, otherwise they will no longer be able to provide such loans. It is important that people continue to have access to credit when it is really necessary.”

Interest higher than purchase amount

Calvin Ceder, director of Anti Incasso law firm, says the problem is not with the percentage, but with the amount of ultimately payable interest. “You pay this percentage of interest every year. So if you take years to pay back a loan, the amount of interest payable can be high, sometimes higher than the principal.”

According to Ceder, it would be good to set a maximum for this amount of interest. “You could say that you can collect a maximum of 500 euros in interest on this loan, regardless of how long it takes someone to repay the loan.”