Borrowing money: possibilities and risks

47% of Dutch households have one or more loans or debts, with mortgages not being taken into account. Borrowing money seems very normal, in the Netherlands most loans are taken out for buying a car

47% of Dutch households have one or more loans or debts, with mortgages not being taken into account.

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Borrowing money seems very normal, in the Netherlands most loans are taken out for buying a car or motorcycle (31%), followed by paying the fixed costs such as rent / mortgage and energy costs (18%) and buying your own house (17%). The most common types of loans in the Netherlands are shown in red on the bank account (20%) and a loan from a bank or finance company (18%). (Source: Money matters in practice, NIBUD 2015 ).

There are two main types of loans: consumer credit and mortgage credit.

The consumer credit is also called goods or consumer credit. These loans are taken out for buying things that have a limited shelf life, such as cars, travel and white goods. Mortgage credit is used to purchase durable goods, such as a house. The difference with consumer credit is that this is a mortgage loan, ie collateral, loan.

When entering into a long-term financial obligation such as a loan, it is important to compare and weigh up the costs, risks, conditions and duration of the various options. For mortgages there are often good advisers and (online) resources to make a well informed choice, for consumer loans this is much less. Fortunately, the consumer association and NIBUD offer good information about this.

We have listed the most common forms of consumer credit:

  1. Red is on your bank account, this is usually very expensive because banks ask for a high (and sometimes even their maximum) interest. So even if it is only for a short period of time, this can cost quite a bit of money. The maximum interest rate is currently 14% (rijksoverheid.nl – 2018).
  2. A credit card has a spending limit. Interest and repayment will be paid on the outstanding amount. The repayment is different per bank: the total a month or every month. The interest rate is usually higher than with a personal loan or revolving credit.
  3. A personal loan provides clarity because it has a fixed term and interest.
  4. With a revolving credit , the end date, but also the interest is not fixed. There is a maximum credit amount, but repaid amounts can also be withdrawn again.
  5. Many people do not know that buying on installment is also a loan. Because an amount is available at the webshop, this is also a consumer credit that is repaid and on which interest is paid. Often this is also the maximum permitted interest rate, which is currently 14% (2018).

The Credit Registration Office ( BKR ) registers all loans that are taken out. It is therefore important to consider whether a loan for a telephone is necessary, because this can have an effect on, for example, a mortgage application.

Note: Borrowing always costs money. These costs are not only the interest you pay but also the costs of taking out the loan and the annual costs while the loan is in progress. Responsible borrowing starts with choosing a trustworthy bank or finance company that adheres to the code of conduct and consumer credit standards so that the borrower has enough money left for normal living expenses. So stay away from flash loans and providers who claim that borrowing is not expensive.