Cheaper loans a little sooner
Borrowing money can be considered a major trend these days. You can borrow for almost anything, from housing to buying a car or a cell phone. However, it’s not a good idea to borrow too much. We can easily fall into a debt trap from which there is no escape. That’s why one should proceed cautiously when it comes to loans.
This year, however, we may encounter something unusual. The preferential loans that banks are offering their clients in September and October are already available in their portfolios. What is behind this change? It is likely due to measures taken by the Czech National Bank (ČNB).
As the koruna strengthens, we can also observe growth in the Czech economy. To prevent the market from becoming oversaturated with money—and thus avoid rising inflation, which would devalue the currency—the National Bank is raising interest rates and tightening the rules for obtaining loans.
If loan rates remained around 2.5%, this could be advantageous for customers, but if too much money were released into the market, it would have disastrous consequences for the economy.
Banks are therefore now trying to attract as many customers as possible so they can secure a loan under still-favorable terms. Starting in October, the interest rate on loans is set to rise to as high as 3%. An increase of half a percentage point may sound trivial, but in the long term, it can have dire consequences.
One possible solution could be to lock in the interest rate. This would only be advantageous in the short term, while the economy is still growing, as it would secure the current favorable terms for us. In the long term, however, experts no longer recommend fixing the rate. Since no one can predict how long the economy will remain in growth, fixing the rate might not pay off for us. Furthermore, if inflation were to rise, we could end up repaying a devalued loan for the next twenty years.
The requirements for obtaining a loan, however, remain the same. We must have real estate or income that we can use as collateral, not be listed in the debtors’ registry, and be consistently able to make payments.