Many young people get into financial difficulties because they take out small loans and then cannot repay them. This is reported by the credit agency Schufa and debt counseling centers. This is often due to offers such as „Buy now – pay later”: Payment service providers such as PayPal or Klarna offer the option of paying for goods ordered online after 30 days. In most cases, there is not even any interest to pay. However, those who lose track of their spending can quickly fall into the debt trap. The German government therefore wants to tighten the conditions for such loans.
Warning from Bafin
The financial supervisory authority BaFin warns against getting into debt with „buy now, pay later” schemes. An unpaid bill can be expensive: PayPal, for example, charges fees for unpaid direct debits and announces on its website that it will later engage a debt collection agency. BaFin also advises keeping an eye on interest rates and fees in general. For example, PayPal charges over 11 percent interest on its installment loans. The costs associated with each type of loan can be found in the small print on the companies’ websites.
More small loans
According to Schufa, small loans under €1,000 in particular have increased significantly in recent years. Of the ten million loan agreements concluded, every second one was for a loan amount of less than €1,000. 18-19-year-olds took out loans averaging €343, while the average across all age groups was €409.
New law planned
The federal government wants to make it more difficult to access small short-term loans with a new draft law. In doing so, it is implementing the EU Consumer Credit Directive. The aim is to check creditworthiness more thoroughly than before: only those who can prove that they are able to repay the debt will then receive money. Until now, micro-loans of less than €200 were usually unregulated. However, Paypal and Klarna already state that they carry out credit checks. It is not yet clear when the law will come into force.
More information
Background information on the various forms of credit can be found online:
BaFin | Buy now, pay later
Consumer Advice Center | Buy now, pay later
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