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Interest rates on personal loans rose steadily last year, with the average annual interest rate calculated by the Central Bank of Hungary reaching 18.91 percent in December. That is more than 7 percentage points higher than the 11.84 percent a year earlier. It is no wonder that high interest rates have discouraged people from borrowing, Világgazdaság reports.
The average interest rate of almost 19 percent, as shown by the central bank, is extremely high, even if one includes smaller, short-term, and therefore significantly more expensive schemes in the figure. Even so, December’s figure is still more than a seven-year high: the last time the average personal loan rate was at this level was in October 2015.
Consumers are by no means in an easy position, even if they have sufficient income and want to borrow from their own bank, the lowest interest rate available is typically 12 percent. However, an interesting turnaround is that
even with the high figures, 5.1 percent more people signed new contracts in 2022 than in 2021, with the total value of contracts at around HUF 492 billion (EUR 1.3 billion).
The outlook for this year is not encouraging though, as there are no signs of interest rates falling significantly, and high inflation may lead many people to postpone major investments, often partly financed by loans. Last year’s figures were mainly driven by the fact that the home renovation scheme was still available, a non-refundable state grant of up to HUF 3 million (EUR 8,000), that could be claimed for renovation and modernization work on a residential property. A significant proportion of families used easily accessible personal loans to generate the equity needed to pre-finance the works. However, this scheme was discontinued at the end of the year, and with it the subsidy effect on loans ceased to exist.
Still, despite the unfavorable conditions, personal loans remain the dominant product among Hungarians, alongside baby-expecting loans and home loans.
According to the Central Bank of Hungary, the stock of personal loans held by households reached HUF 1,257.4 billion (EUR 3.3 billion) at the end of December last year.
However, it is not only the rise in interest rates on personal loans that is causing headaches for Hungarians. A similar sharp rise in interest rates on home loans was seen last year, and as Hungarians typically buy a home with a home loan, this has had a negative impact on the market, with many holding off on buying. Then, encouraging data came in early February, after several major banks started to cut their lending rates, with some having lowered interest rates on home and even personal loans. However, it is difficult to say what the future will bring, whether there will be further reductions, or whether we should expect a rise again.
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