12/21/16 · Economics and Business Studies

One out of every ten Spaniards asks for a loan to cover Christmas spending

Last Christmas 3.64 million Spaniards resorted to some form of financing to cover their spending, the equivalent of 12.1% of the adult population, according to analysis by Kelisto. Consumers paid fairly high interest rates but the figures reveal that the quick loan option, with the highest rates, is increasing. In 2015 this sector doubled its clients in Spain, from half a million to one million, which meant an increase from 270 million to 540, according to the Spanish microloans association, AEMIP. Christmas increases requests for this type of quick loan without paperwork. UOC professors, expert in financial economics, advise citizens to “understand the price they pay for the money borrowed”.
Studies show that people with less financial knowledge usually pay higher interest rates for their loans.<br />Foto: Didier Weemaels

Studies show that people with less financial knowledge usually pay higher interest rates for their loans.
Foto: Didier Weemaels

Consumers paid an average interest rate of 12.67% NIR (nominal interest rate) to cover their Christmas spending last year, and if they chose the most popular option (credit cards), they paid up to 24% NIR to defer their payments. Microloans are the most expensive option because they can reach up to around 450% APR.


NIR and APR are confusing

The price of money can be expressed in different ways, "all a little confusing if you do not have basic knowledge of finance", warns Elisabet Ruiz-Dotras, professor at the UOC Faculty of Economics and Business. Normally the financial bodies or companies that provide microcredit publish interest rates with different frequencies (monthly, quarterly, six-monthly, etc.), the nominal interest rate (NIR) or annual percentage rate (APR). "All these variables are different and you often do not know how to compare them and in the end only understand how much you must pay each month, but you don’t know if the cost of the loan is high or low compared with other offers".

The UOC economist advises comparing loans or credits through the annual percentage rate. The Banco de España obliges bodies to publish this value and it is the only homogenous way of comparing the different prices of loans. The APR is an interest rate that includes costs and fees in its calculation and is annually based. In contrast, the NIR does not include costs or fees associated with the operation. Therefore, "you can find microcredits with an APR of 25% but there are others with an APR of 444%", warns the UOC professor.


Asking for a quick loan is expensive in the end

Asking for a quick loan online is easy and simple because no paperwork or collateral is required, but it has a price: very high interest rates. For example, a loan of 300 euros over 30 days can cost between 84 and 111 euros, which means a monthly interest rate of between 28% and 37% or an NIR of 336% and 444%. "These prices are totally excessive if we consider that the Euribor is -0.081% (negative rate) and the Banco de España has issued an official price for money for 2016 of 3%", comments Ruiz-Dotras. In general, the amount requested can reach up to 900 euros.

Nevertheless, approval of a loan does not exceed 50% of requests because regular income is usually required, "such as a salary or pension, which supports the client’s solvency", explains the UOC professor.

The Spanish will spend 682 euros this Christmas, which is 4% more than the 655 euros of last year, according to data from the "Estudio de consumo Navideño 2016", conducted by the consultancy Deloitte.


A man, aged 41, with a salary is the typical client profile for this kind of loan

We are talking about a mostly male public, middle-aged and salaried. Specifically, two out of three people who receive quick loans are men and the average age is 41. 82% of clients have salaried work, compared with the 10% with a pension, 5% with other benefits, and 3% who are self-employed. On average, they request a loan of 241 euros and have an income of 1,310 euros. And in terms of place of residence, Madrid and Catalonia account for 41.7% of clients, according to data of a recent study by Cashper, one of the companies in the sector.


Alternatives to microcredit

The Spanish Organization of Consumers and Users (OCU) recommends:

  • Asking for the money from family or friends.
  • Asking your employers (if you are working) for an advance or loan.
  • "Squeezing your bank account" even though you’ll be in the red.
  • Using a credit card.
  • Using specific deferred payment cards.
  • Asking for a personal loan at the bank.


51% of the population lack basic knowledge of finances

"A high percentage of the population is only concerned with what they have to pay today, without taking into account that the financial situation within ten years can be very different", says Ruiz-Dotras. In fact, 69% of Spaniards say they would have taken more responsible decisions if they had been better educated about finances at school.

"It is absolutely essential for society to have a minimum level of financial understanding to be able to make their own decisions and plan their spending and savings and thus optimize their resources", argues Ruiz-Dotras. According to Aviva data, nine out of ten citizens (89.93%) believe that more training should be provided on finances and home economics at school.

Experts UOC

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