Posted on October 8, 2019 at 6:25 AM
Most economists, however, agree that saving should soon be more profitable, as debt recovery is only growing and that there is otherwise a risk of an economic overheating that may result in excessive inflation. Certainly, more and more (not fewer) mortgages have begun to take place since the stricter mortgage loan repayment requirement was introduced, but the loan carousel is still at full speed.
The biggest reason for debt repayment is mortgages and then mortgage loans, while sms only accounted for 0.16% of Swedes’ loan burden in 2016, so no, sms are hardly the biggest problem seen from a macroeconomic perspective, despite all the media propaganda.
We should save instead of borrowing – so what does the government do?
Debt mountain is growing, our economy risks overheating and inflation and economists believe that Swedes should start saving more and spending less, so what does the government do? Well, it raises the tax on savings ! In this year’s budget, it is proposed that the tax on savings in investment savings accounts and capital insurance should be increased, which is largely the only savings form that gives any return whatsoever today.
It feels right up the walls, not least at a time when the policy rate will remain record low for a while, making loans and other credits cheap and saving on savings accounts unprofitable. It is hardly a sensible way to go to get control of inflation and the Swedes’ debts.
Low interest rates – a bigger hump than high ones
How many times have you not heard how the high interest rates of sms loans lead to people falling into the debt trap, even if that is not true. First of all, most people actually pay back on their sms loans on time. Secondly, it is rarely the interest rate that is the biggest penalty when it comes to loans below USD 10000 (the average quick loan is USD 8200, see Finansinspektionen’s report Consumer protection in the financial market page 12) which has a maturity of a few months. For example, if someone borrows USD 8,000 and repays USD 10000 within three months, there is rarely only USD 2000 missing if the person does not repay his loan, it is more missing. It is thus true that even if the loan costs were much lower, the person would not have been able to repay his loan on time.
Often it is about the maturity being too short in relation to the amount you borrowed or you have simply been irresponsible with your finances (just look at the TV series debt trap you see), but it is a completely different problem and another discussion. There are, however, quick loans, which you can find here at Good Finance, which has a maturity of 1 year for USD 8000 and which is nevertheless significantly cheaper than most 3-month loans, for example at Cashbuddy and Goodcash. When it comes to such quick loans, the interest rate is an even smaller problem, since the interest costs for these USD 8,000 loans are only around one hundred dollars a month.
Risky bank loans
No, in fact, it is the low interest rates that are causing debt relief in Sweden to rise, there is no doubt about that. The low interest rates mean that mortgage loans are cheaper than ever (despite the banks’ fine margins) and that private loans / bank loans are also cheap. This, together with aggressive marketing, has meant that more and more people are taking large loans, it’s so cheap!
The thing is that, despite the low interest rates, private loans are a much bigger hump than sms loans, both in terms of debt relief and debt. A single loan of approx. USD 80000 corresponds to the full 10 average loans, and a loan of 400,000 corresponds to 50 average loans. And when it comes to debt due to payment difficulties, it is much more difficult to get rid of a debt of tens of thousands or hundreds of thousands of kronor than a small loan of USD 5000 – 10000.
This is known to the Swedish Financial Supervisory Authority, this is what all economists know, but despite this, it is mostly written in the media that fast loans with their high interest rates are a major problem. The problem with blank loans is not overstated at all.