The Growing Indebtedness of Spanish Households and its Impact on the Economy

“He summer It’s going to be hot and the balances are going to skyrocket, because there are drops in some types of consumption but not in those related to the turismoand we will have to see how the numbers come with the start of the course”, predicts Antonio Luis Gallardoeconomist of To its end (Association of Financial Users).

The data on credit contracting disseminated by the Bank of spain point to an increase in indebtedness of family economies through the financial products that are most burdensome for them, such as credits of consumption.

The demand of these to meet economic emergencies usually grows on the eve of holidays and times of consumption such as going back to school and Christmascredit cards and revolving.

The hiring of this type of product reaches a rate of 390 million daily in the case of cards and more than 96 in the policies, which means a joint rate of more than 24 per hour.

These are the easiest ways to access money in case of need, although they are also the products what a major cost effectiveness generate to financial institutions and, at the same time, those with the greatest economic demands entail for their clients.

One in seven mileurista households gets into debt

Debt is usually caused by not having savings

Are there many consumers willing to get into debt? The Confidence Index of Consumer (ICC) that elaborates the CIS (Centro de Investigaciones Sociológicas) reflects how in the homes of the 5,8% of those surveyed “it is difficult to make ends meet, so they have had to contract debts“.

That rate, which reached 6.6% in March and which is at levels similar to those of the four previous years, when in May it oscillated between 4.5% and 5.6%, points to something more than a million homes they are in that situation.

That option of indebtedness -usually caused by not having savingswhich is the resource that one in eight has been throwing away for some time Spanish families– it is higher among lower-income households.

In this sense, the average rate of 5.8% shoots up to 14.9% (one in seven) in households that are forced to spend the month with less than a thousand euros and rises to 8.5% among those who enter between a thousand and 1,800, to clearly descend above those income levels.

The highest interest in the last decade

The latest data from transmitterclosed in May, situate above 9% (it has been since March) the average interest with which the hiring of consumer creditsan interest that is closer to tripling than doubling that of the mortgages (3.71%) and that is slightly more than 50% higher than the overdrafts (6.04%).

That precio of the credit of consumption in spain since the beginning of the year is the highest in the last decade.

At the same time, the average interest of the Credit cards and the revolving It is at 18.09%, between two and three points below the 20% and 21% that it reached between 2014 and 2018, when lawsuits against the entities that placed these products began to reach the courts.

The debit balance of customers in ‘revolving’ cards was close to 12,000 million euros in May

However the Supremo A few months ago, he ended up establishing the usury border at a gap of six points over the average interest rate of the cards sold in spainwhich opens the door to endorse the legality of interest of up to 24% when, in any case, the average surcharge is already triple that of the discovered and almost fivefold that of mortgages.

It is a product financial complex in which those high interests are applied to a debt (the money spent) of which each month only the previously established percentage or amount is liquidated, while the rest accumulates, which gives rise to a ball that does not stop growing.

Despite the burdensomeness of these conditions, the debit balance of customers on cards revolving was approaching the 12,000 million euros in May while hiring consumer credits in the last twelve months it once again exceeded the 30.000some volumes that were not given since before the pandemic.

“You have to assess the risks generated by these debts”

“Las revolvingcredit cards and consumer loans are what is marking the incipient wave of delinquency what is happening in the Spanish economyGallardo says.

Judges often dismiss the lien on the debtor’s home and direct liens on wages

The economist draws attention to how “all debt generates a costbut this can be positive if there is a cost of chance”such as the one that entails the purchase of a necessary household appliance for the home.

However, that opportunity cost is often unrelated to the operations that are financed with credits of these characteristics: “You have to assess the risks generated by this type of debt. The debtor responds with all his patrimony present and future”, but, despite this, “sometimes these short-term credits overlap and end up generating a snowball effect that is very difficult to manage”.

Las financial entitiesfor their part, have opted to adopt more aggressive procedures when it comes to collecting the debtsGiven the frequency with which these episodes of over-indebtedness to non-payment, something that, Gallardo notes, also has the purpose of “sending a notice for delinquency.”

These procedures sometimes include demands in which they request the court to seize the living place of the debtor, although, as they are debts of a few thousand euros, the judges usually rule out that possibility and direct the embargoes to the salaryto eventual Tax refunds and, if there are any, to income of another type such as rentals.