Seven percent of Czechs go into debt to pay for Christmas, with a third taking high-risk loans

Despite a growing economy and higher salaries, many Czechs are still taking loans to buy Christmas gifts for their nearest and dearest. According to a survey carried out by the Czech Banking Association, some seven percent of Czech consumers will borrow money to cover their seasonal expenses. What is more, around one-third of those are willing to take high-risk loans.

Photo: David Playford / freeimages

The survey carried out by the Czech Banking Association among more than a thousand people aged 18 to 68 shows that around two-thirds of Czechs are not willing to borrow to money to finance the festive season.

However, some seven percent of respondents said they would take a loan this year to buy Christmas presents. The willingness to get into debt is higher among those under 35 and the average amount they borrow is 10,000 crowns.

David Smejkal is the head of a Prague-based advisory office for people with financial problems:

“Ahead of Christmas, people borrow money to buy electronics, white goods and mobile phones, but also kitchen utensils and toys, so mostly products which are not that financially demanding.”

Helena Brychová, head of a financial education project of the Czech Banking Association, explains why so many Czech consumers get into debt despite the growing economy and higher salaries:

“As the economy grows, an increasing number of people feel financially safe. They are pretty confident that they will be able to pay off their loans. They have a feeling they can afford to buy things on an instalment basis and that they are somehow entitled to take a loan.”

The Czech Banking Association’s survey suggests that more than 50 percent of those planning to take a loan will borrow money in a bank and a quarter will ask their relatives to help them out.

Around one-third of the people, mostly those who are not eligible for a loan in a regular bank, are ready to borrow money from a non-bank loans agency. Such loans are disadvantageous and pose a high risk of the consumers falling into debt.

Photo: Gundula Vogel, Pixabay, CC0 1.0 DEED

While the average interest rate on bank loans is around six percent, non-bank institutions offer a 15 percent rate and in the case of micro-loans the rate can be as high as 1100 percent.

Kristýna Bajer is an analyst of pujcky.co, a loan comparison website:

“The due date of these short-term loans is around 30 days, which puts a lot of pressure on the clients. In case they don’t meet the deadline, they have to pay penalties for the delay. But in fact people can take small loans in banks, where instalments can be spread out over several months or even years.”

Ahead of Christmas, experts advise people to study the conditions carefully before agreeing to take a loan. Otherwise they might pay for a short moment of happiness with long-term financial troubles.