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Tuesday, June 25, 2024

Warnings issued over consumer loans

Collection agencies in Norway have been busy this year, with the numbers of Norwegians defaulting on high-interest consumer loans rising dramatically. Young borrowers figure strongly among the defaults, and lenders are alarmed.

“This is a real warning sign,” Anette Willumsen, chief executive of collection agency Lindorff in Oslo, told newspaper Dagens Næringsliv (DN).  Others, including many young Norwegians themselves, claim lenders are also to blame.

‘Too easy’
“It’s become much too easy to get a loan,” Linas Saulys, age 28, told DN. He just bought a new keyboard for his laptop, this time with money he already had earned. When he spotted a good offer on a new motorcycle last spring, he said it was no problem to get a consumer loan of NOK 45,000 (USD 5,400).

“The interest rate was around 10 percent,” Saulys said, when his loan was approved after a quick credit check. “I paid it back after just six weeks when my feriepenger (tax-free holiday pay that replaces standard income in June) arrived.”

Like many other young Norwegians, he was more than open to the idea of borrowing money to buy things he wanted. There’s been an explosion of loan offers in recent years, in a country where credit cards weren’t widely accepted until the 1990s.

Widespread promotion
DN reported how a string of specialized banks have positioned themselves in the unsecured consumer loan market in recent years, advertising loans up to NOK 500,000. Upon applying, the money can flow into borrowers’ bank accounts in a matter of hours.

The interest rates are high at between 10-20 percent, but demand has been high as well. Norwegians collectively held consumer loans of around NOK 90 billion as of May, up 11 percent from last year, according to the state financial regulatory agency Finanstilsynet.

The consumer loan growth compares to 4-5 percent in the home mortgage market, and defaults are rising.

Willumsen of Lindorff said that defaults on consumer loans and credit card debt were up 30 percent in the past year. As Norway’s largest collection (innkasso) agency, Lindorff has unique insight into Norwegians’ payment patterns over the years.

Living beyond their means
Willumsen stressed that the double-digit growth in defaults is based on low levels of earlier consumer debt in Norway. “The development is nonetheless a warning that folks need to pay more attention to this,” she told DN, and be able to pay the bills they incur.

Rival collection firm Kredinor also reports growth in defaults among borrowers aged 18 to 25. “There has been a gradual increase in the debt that younger Norwegians have taken on,” Tom Berntsen, chief executive at Kredinor, told DN. He said that consumer loans, credit card debt, electricity bills and mobile phone bills are the main obligations that young Norwegians have problems paying.

“They’re well-educated and good at social media,” Berntsen said, “but their knowledge about how to handle their personal economy is clearly not good enough.”

While some of the defaults can be pegged to rising unemployment and job losses among young workers, with income falling much faster than consumption, Willumsen noted that many of those in debt trouble simply had a problem with consumption that was beyond their means. Berglund



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