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While many people saw their incomes reduced or have lost their source of income entirely, record low interest rates make it tempting to borrow money. However, caving in to temptations is not always worth it. Is it the right moment for you to think about a loan? 

-The answer, of course, is: „it depends”. Several factors need to be considered here; first of all, it depends on the financial situation of your household and the importance of your goal in a long-term perspective.

For example, renovations and repairs sometimes simply cannot wait. However, if you think paying it off might be a liability, it is absolutely recommended to be prudent and wait. In my view, some of our consumer needs should also be reconsidered- it might not be the best moment right now to buy a new smartphone or another tech gadget – Ewa Wernerowicz, CEO of Vivus Finance, recommends.

Ideally, the decision to take out a loan should follow a thorough evaluation your household budget. We should first consider our regular expenses and then calculate how much money we need and what monthly instalment wouldn’t burden us too much. According to Patrycja Rogowska-Tomaszycka, member of the Provident Polska executive board, taking a loan in the current circumstances would be advisable if our income situation is fairly predictable and we need the money for an unexpected expense or a bigger one-time purchase.

Who can borrow?

The pandemic-induced crisis has also influenced the offers of banks and lending companies. Because of the destabilized economic situation, low interest rates and the potentially increased credit risk of borrowers are not encouraging financial institutions to hand out loans recklessly. People who only a few months ago could easily borrow tens of thousands of zloty can now expect to be given only a few thousand.

- Supporting our customers doesn’t only mean offering them new products. Sometimes it also means encouraging them to consider borrowing less, forgo the idea completely, or even denying them the credit- says Piotr Skoczek, director of the Credit Products Management Department at Credit Agricole.

Monika Charamsa, the CEO of NewCommerce Services (Bancovo’s parent company), thinks that the dynamic changes in last two months have had a considerable influence on the availability and prices of financial products- one of the groups especially affected by this change are clients active in economic sectors which suffered the most. As usual, people with a steady source of income- either with an employment contract or those receiving a pension- have the best chances to get a credit or a loan. Freelancers and those employed on the basis of a contract for a specific task are also likely to be granted a credit, however, possibly only short term. 

Banks or lending companies- Where to borrow?

To borrow the money, we essentially have two options; we can either go to a bank or one of the lending companies. Should you decide on the latter, it is highly recommended to do a background check first. If you’re uncertain about the company or using its services for the first time, verify its credibility. According to the Polish law, offering loan products is limited to business entities recognized by the Polish Financial Supervision Authority (KNF). The list is public and can be accessed on the institution’s official website. If the company which wants to lend us money is not listed in the KNF’s register, we shouldn’t use its services in the first place.

Every legally operating financial institution- banks, credit and savings cooperatives (SKOK), and other lenders, also require a detailed background check of the borrower’s credit history. It’s a mechanism designed to prevent excessive debt.  

-Products offered by banks and lending companies can be complementary- it all depends on what the client finds most important: whether it is the price, waiting time, and the borrowed amount- explains Ewa Wernerowicz.

What is the cost of a bank loan?

Usually, it is comparatively less expensive to borrow from a bank, but the loan requirements are higher. However, “less expensive” doesn’t necessarily mean that the interest rates are particularly encouraging.

For example, PKO BP offers loans with a payback period between 2 and 96 months; the Annual Percentage Rate (APR) for borrowing as little as 500 PLN is 13,57%.

The APR at Pekao SA is 13,30%; if we borrowed 8559 PLN with a loan payback period of 30 months and an 8,68 % variable annual interest rate, the total cost of credit would be 1453,59 PLN.

Millenium offers cash loans with an APR of 14,35%; borrowing 15 000 PLN, we would end up paying 20 700 PLN, given a 6,34% fixed interest rate.

Borrowing money from lending companies

Lending companies are now also more careful than before the pandemic. Loans are offered only to clients with a very high credit score. A considerable number of clients using such services is now left without any access to legal financing methods. Starting April 1, borrowers have a limited access to offers with lower credit costs described in the “anti-crisis shield”. As a result, the number of declined loan applications increased on the entire market.

Wonga, for example, no longer offers medium-term (payback period between 4 and 23 months) and short-term loans (less than 30 days). Clients with the highest credit scores can still take out a loan for up to 36 months.

Other lending companies have also restricted their offer. Popular no-cost loans practically disappeared from the market.

Wonga offers 30 days short-term loans of up to 3 000 PLN, and instalment loans of 10 000 PLN with a payback period of 3 months or between 24 and 36 months. To evaluate the borrower’s credit score, Wonga uses eight external data bases, such as BIK, CRIF and BIG.

-The pandemic made the evaluation process even more thorough. Before, it was fully automated. Now, given the increased risk and uncertainty, some clients are being additionally verified by our employees, and can be asked to send us more documents- explains Tomasz Fedyna, CEO of Wonga.

Provident lets us borrow between 300 PLN and 15 000 PLN.

What to consider while getting a loan? Not only APR

While comparing different loan offers, we oftentimes look at the APR, i.e. the annual percentage rate. It shouldn’t be the only criterion to consider, however.

APR can only serve as an effective indicator of credit cost while comparing offers with identical parameters, i.e. the same loan period, the same instalment frequency (e.g. paying weekly, monthly, etc.), and the same instalment model (e.g. fixed rate)- explains Agnieszka Wachnicka, president of the Financial Market Development Foundation.

If we compare a loan with weekly and monthly instalments, for example, it would be more conclusive to consider the total loan cost i.e. the borrowed amount including interest rate and additional costs.

- Because the Annual Percentage Rate recognizes the time-varying value of money, short-term loans often come with a higher APR. It doesn’t mean, however, that loan costs are nominally high- in fact, the opposite can be true- says Agnieszka Wachnicka.

Before we decide to sign anything, it’s important to understand the conditions.  Unclear and vague formulations should alarm you.

- We should always remember to read the document first- if something strikes us as odd, we should contact a customer consultant, a lawyer, or any other expert- she recommends.

***
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