The majority of consumption loans (non-mortgage loans) are small and have a high interest rate and a short maturity. However, it is households with large loans that represent the largest share of new lending, and these loans are growing at the fastest rate. The households with the highest income take out the largest loans. If the interest rate increases, many borrowers will need to use a large part of their income to make their interest and amortisation payments. This is evident in Finansinspektionen’s (FI’s) analysis of consumption loans, Swedish Consumption Loans.
FI has analysed the market for consumption loans by studying 380,000 borrowers at 34 different firms.
Households with large consumption loans represent the largest share of new lending, and these loans are growing the fastest. The increase has been particularly large the past four years, a period which has featured a strong economy and low interest rates. In addition, the mortgage cap and the amortisation requirement may have contributed in part to the increase in the use of large consumption loans for housing purposes and other purchases.
Consumption loans are 18 per cent of household debt, and they therefore pose only a limited stability risk, but consumption loans affect household finances. Every seventh loan has resulted in a collection notice for the borrower. This is a sign that many borrowers could be experiencing problems repaying their loans. The share of borrowers who received a collection notice is significantly lower for loans where the credit assessment included a discretionary income calculation. Households with new consumption loans and that already had a loan spend on average one-fourth of their income on interest and amortisation payments. If the interest rate goes up, they will be forced to spend an even larger percentage of their income.