The Same Loan can cost €70 or €4,000 - The Importance the Responsible Lending Index

Published: Dec 23, 2022 Reading time: 7 minutes
The Same Loan can cost €70 or €4,000 - The Importance the Responsible Lending Index
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People are spending more money these days, so it makes sense that they are also borrowing more. The good news is that loans in and of themselves haven’t gotten more expensive. However, those offering credit can always refuse applicants, which can and does have a significant impact on customers, especially during the current energy crisis. An unsecured loan – that is, a loan that doesn’t require any sort of collateral – of 50,000 CZK (€2,000) can either cost less than under 1,700 CZK (€70), or more than 100,000 CZK (€4,000). This type of information can be gleaned from our current Responsible Lending Index. Consumers should be also wary of the fact that the interest on late payments has nearly doubled.

Christmas is around the corner and with it comes increased spending due to gift shopping, buying food, and/or traveling. Unfortunately, this year’s end is also connected with the end of fixed energy prices for many people, resulting in higher gas and electricity bills. It can be assumed that people will take out fewer loans for gifts this time, but trouble is also on the horizon for those who didn’t need loans in the past.

“Loans getting two or three percent more expensive isn’t that much of an issue. The bigger problem is that banks will start refusing more and more clients, pushing them into the non-bank sector,” points out David Borges, a People in Need analyst.

“We highly recommend a close examination of the terms and conditions when taking out loans with non-banking institutions, and everyone should make sure to really consider the monthly instalments that they can afford,” says Borges, who regularly compares the terms of lending between bank and non-bank institutions. 

Lending money for 300% or 400% per year is immoral

The result is PIN's Responsible Lending Index, a unique tool to help find a safe loan. The current 2022 version compares 37 unsecured loan providers licensed by the Czech National Bank. Individual institutions are compared on 14 parameters in areas of expense, transparency, and client-friendliness. The result is a ranked list, from the best-rated companies to the ones that should be avoided.

View the original chart on Tableau Public here (in Czech)

The Responsible Lending Index ranks banks and non-banking institutions into five groups according to star ratings – the more stars, the more responsible the provider. Four stars mean plausible pricing and no deceptiveness in their terms. Three star institutions are fair too, although they could be more accommodating towards their clients.

The cheapest credit of € 4,000 paid over 12 months (just under €70 per month) is offered by Maxbanka, a newcomer to the market. Most loans provided by banks and some non-banking companies are between €120 to €180. On the other end of this list are smaller, but extremely overpriced companies such as ViaSMS or Viva Credit. On the other end of this list are smaller, but extremely overpriced companies such as ViaSMS or Viva Credit. These providers usually offer "lending frameworks” that do not have fixed monthly instalments, but use a model loan example, which could cost over €4,000 annually for a €2,000 loan.

"However, the issue of expensive loans is more complicated. They should not be unequivocally condemned. Lending money for 50% or 80% annually can seem shocking at first, but for someone who urgently needs financial help and has no other options, even such an expensive loan makes sense. What matters is that instalments need to be set up in a way that allows debtors to repay their loans safely. If we deal with long-term loans where the creditor demands 300% or 400% annually, higher risk of default is no longer a plausible argument. The result is a devastating financial product,” comments David Borges.

View the original chart on Tableau Public here (in Czech)

A loan is not the only solution to financial issues

People who find themselves in financial difficulties should consider alternative solutions to taking out a loan first. “They should first try to cut down on other, less necessary, expenses. If their income still isn’t enough, because, for example, a high energy bill it might be time to apply for a so-called “immediate emergency assistance” at the Czech Labour Office. Regular housing benefits can help with increased living expenses. If people don’t know how to apply for state aid, they can consult our helpline advisors at +420 770 600 800, or use our website (currently only available in Czech), advises Daniel Hůle, head of Debt Counselling at People in Need. However, in some situations, a reasonable loan can still be a viable solution.

While preparing the Index, this time we paid more attention to the accuracy of information that individual providers share on their website. It turns out that some information is still misleading. For example, very few institutions list typical interest rates. What some companies refer to as a “representative sample” tends to be the cheapest option possible and usually only available to very few people. “That is another thing we can commend Komerční banka and Zonky on, because their websites show the actual rates that people usually get,” says Borges.

Bad news: higher interest rates on late payments

As always, we also zoomed in on the situations that creditors find themselves in in the event of inability to repay. Luckily, many institutions realised during the COVID pandemic that it’s better to clearly explain the steps that a client should take if they find themselves in times of difficulty. Most large Czech banks have really improved in that regard.

“This was actually confirmed again this autumn, when a number of banks and non-bank agencies such as Komerční banka, Essox, Modrá pyramida stavební spořitelna, Česká spořitelna, Stavební spořitelna České spořitelny, Raiffeisenbank or UniCredit Bank all voluntarily took part in the debt-relief campaign Milostivé léto (Year of Remission) and, either in full or partially, forgave unpaid debts,” remarks Kateřina Kučerová, debt advisor methodology specialist at People in Need.

A change, and an unpleasant one, unfortunately, is the current increase of interests on late payments. This penalty almost doubled in the past year. However, this was not a decision on the agencies’ part, but rather the result of rate hikes by the Czech National Bank.

The total interest that a debtor could pay for a loan that was originally €4,000 increases significantly after three missed payments, so paying the loan back six months later could cost an additional €330 or €620 more with the more fair agencies. Some companies charge even more interest, which makes repaying the debt even more difficult. “We highly recommend maintaining communication with the creditor even when payments are late,” adds Daniel Hůle.

View the original chart on Tableau Public here (in Czech)

Transparency is improving

Throughout the years that we've been publishing the Index, the initial apprehension and animosity that certain providers felt has gradually been replaced by an interest in feedback and real efforts to improve. “In the past, the attitude of these institutions would often be 'we fulfil all the legal requirements, what more do you want?'", explains Borges.

And things have improved. The vast majority of institutions, for example, publish sample contracts on their websites. This used to be rare. It used to be that consumers only saw the fifteen pages of single-spaced text, including all the prices, terms and conditions, just before they signed the document when the client doesn’t have the time to go through it – we found this to be unfair.

Today, most companies also include a calculator on their website, despite there being no legal mandate for that. But it is essential for potential customers, as it gives them an idea of how much the credit will cost and how easy to repay it will be. They can even easily compare multiple offers.

“Many providers do take our recommendations into consideration. This is also reflected in the results. The companies with the best scores all reach similar results, which was our goal,” assesses an analyst.

Before seeking help from an expert, consult our Index

“If I take out a loan with a non-bank institution directly from their website now, the offer will be fully transparent. What concerns us are the credit intermediaries who don’t seem concerned with transparency at all. That’s why we recommend using the Index and applying for credit directly on the provider’s website. Definitely don’t look up things like 'credit without income proof,' on the internet because search terms like that tend to lead directly to problematic intermediaries,” adds Borges.

The Responsible Lending Index 2022

Compiled based on 14 parameters, sorted further into the 3 areas of: 

  • Expenses – how much will the customers pay under normal, standard conditions, and how much it will cost them if they are unable to pay.  The expenditures have the most weight in the final evaluation.
  • Transparency – the extent and comprehensibility of the information provided on the company’s website.
  • Client-friendliness and responsible lending – how thoroughly the provider verifies ability to repay the debt. 


Autor: David Borges and Eva Kroupová

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