Approximately three percent of Czechs are considering taking out loans for Christmas gifts. While this might seem like a small number, it represents hundreds of thousands of working-age people. If they proceed, they will need to be cautious of several factors.
In a recent article, Lukáš Kaňok from Kalkulátor.cz pointed out that loan repayments are not just about interest rates but also involve additional fees. The APR (Annual Percentage Rate of Charge) is used to assess how much the loan will ultimately cost. This indicator informs about all items, including fees for drawing a loan, processing a loan application, or for managing an account to a loan. It is essentially the percentage that the consumer pays during the year on the total loan value.
“The lower the APR, the cheaper the loan is. People take out smaller loans for Christmas gifts, but these often have high APRs and, therefore, get quite expensive in the end,” warned Kaňok. He added that these smaller loans are often associated with hefty penalties or fees for non-repayment.
Petr Jermář from the Banky.cz portal notes that some loan companies lure people with interest-free loans. However, instead of interest, the provider charges fees. You can recognize a free loan with an APR of 0%. But alongside APR, there may also be some penalty reflected in the loan price. This could typically be interest on arrears, but sometimes for early repayment or extraordinary installment.
Lastly, Jermář warns that caution is needed with “free” loans, especially concerning the repayment period. Some set it to just fourteen days, others to a month. “So you must be clear when signing the contract about what you will return by the agreed date. Once you exceed this period, the creditor will start charging penalties,” Jermář warned.
In conclusion, while a small loan to cover Christmas expenses may seem friendly and manageable, the reality is often far from it. High interest rates and hefty fees for non-payment can quickly turn a seemingly small loan into a significant debt.