The Austrians are so heavily indebted, as they were last in the financial crisis, with falling incomes. What borrowers who have run out of credit and are having trouble paying installments can do best now. What companies have to contend with as debtors.
People went into heavy debt during the pandemic. According to the most recent surveys by the National Bank, private households are more indebted than they have been in recent years 15. The debt ratio, as a percentage of disposable income, rose by 5.1 percent to 93 percent in 2020. That with falling income. The corona-related deferrals for loans expired at the end of January 2021. Since then, the banks have been expecting regular monthly installments again.
But what if money is tight and your job is gone? Or the business model has collapsed and the company can no longer service its loan and the bank threatens to call the loan due to default?
The bank has the right to call in a loan if the borrower is persistently in default with his payments. However, there are specific legal requirements that the bank must adhere to, especially for loans to end customers. The borrower must be in default with at least one installment and have also allowed a two-week grace period to pass unused. The defaulting debtor must have received at least six weeks’ notice before the loan is due.
Cancellation can be expensive
“However, the termination of a loan agreement is expensive and should be avoided at all costs,” said Christian Prantner, loan expert at the Vienna Chamber of Labor (AK). “When a loan is due, apart from expenses, the bank will charge high interest on arrears in the future,” says Prantner. In the experience of the consumer advocate, these are on average between just under 11.75 percent and 20 percent.
The mountain of debt is getting bigger and bigger – when foreclosure is threatened
“Because of the high interest on arrears, many debtors are only busy paying the interest on their debts for years. And sometimes, because of the high interest rates, it’s not even enough to stammer it off, “says Prantner. That already happens with loan debts of, for example, 20,000 euros. The result: the mountain of debt is getting bigger and bigger But the mountain of debt is still not getting any smaller. Another example from AK practice: The husband who has taken out a loan dies but has not taken out credit insurance. Then often only the foreclosure auction remains. A right to lower the There is no previous lower borrowing rate, even if regular rates can be negotiated again after a while.
Inexperienced companies can have a hard time
Corporate customers, especially smaller companies, often EPUs, who have less experience in dealing with banks, can, according to AK, easily become the plaything of banks, especially with variable interest rate agreements. In contrast to contracts with private customers, these are not bound by interest rate adjustment clauses. If the reference interest rate on loans falls, these do not always have to be passed on to their corporate customers, according to a ruling by the Supreme Court.
When it comes to loans, banks try to save credit
However, despite the comparatively high loan amounts, the biggest problems are not caused by loans for real estate, but by consumer loans. “When it comes to loans, the banks try to save the credit and usually come to an agreement with the customer on a lower rate or deferral,” says the AK financial services expert.
Long-running: disputes over consumer credit
Many pay comparatively high interest rates. Unlike mortgage loans, consumer loan terms are rarely compared. Often, loan interest is paid around 5.5 percent. With a reference interest rate of 0.2 percent for the 3-month Euribor, this means a profit margin of over five percent for the banks. Before the corona crisis, the surcharges were only 2.5 to three percent. But the AK is also noticing an increase in lending rates for mortgage loans. “The high demand is driving up the conditions,” the consumer advocate sums up.
Inadequate service from the banks can make it difficult to contact you
The most important tip to avoid repayment is to contact the bank early on. However, this is not always easy, even with good will. Prantner: “We get calls from debtors who are unable to get in touch with the bank.” In recent years, numerous branches have been closed, and services for payments, for example, have been restricted. The complaints and ombudsman offices of banks work more badly than right at some institutions, so the experience of the AK. At others like Erste Bank and Bank Austria, the complaint management, where such problems can be deposited, works very well.
If your own efforts do not lead to the goal or you do not feel able to negotiate with banks on an equal footing, lawyers or consumer advocates will take over on request. “We try to negotiate lower default interest for the respective customer at the bank and to agree a reduction in the loan amount with creditors,” explains Prantner. If, for example, 50,000 euros are still open and the debtor can pay 10,000 euros immediately, consumer advocates try to clear the remaining debt. Or an attempt is made to extend the term of the loan and to negotiate the reminder fees, which can run into hundreds of euros over the years. After all, a reminder costs an average of 20 euros.
With honest debtors, however, you can already achieve a lot at the bank
However, if customers never respond to letters from the banks, consumer advocates will find it difficult to obtain payment relief. “With honest debtors, however, you can achieve a lot at the bank,” says the credit expert. However, when debt relief is no longer enough and the high outstanding debts are over your head – some have loans from two or three banks – the best solution is to seek advice on debtors.
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