As Christmas approaches, the question of what to gift our loved ones with occupies the minds of most of us. As soon as we find the answer, it is often replaced by an even more complex consideration, namely what we use to pay for the gifts. The need to purchase valuable or expensive gifts is so great for some consumers that they do not hesitate to take out a loan for this purpose. But why shouldn’t you borrow for Christmas presents?
Before Christmas, more than ever, marketing campaigns are pushing shoppers to spend unnecessarily and trying to get out of their pockets even what they don’t have in them. Yet borrowing for gifts is one of the biggest wasteful things you can do to get into debt. If you have to borrow for something, it should serve you longer than you’ll be paying it back. It is definitely not wise to borrow for children’s toys or fashionable electronics. If you borrow one year for gifts and repay that loan for more than 12 months, what will you use to fund your holiday expenses next year?
“Loans, which are most often used by consumers to purchase consumer goods, household equipment or just to buy various gifts, fall under the category of consumer credit. It can be briefly characterised as a sum of money lent to the client (borrower) for non-business purposes,” explains Eduarda Hekšová, director of the consumer organisation dTest.
Consumer credit does not always have to take the form of cashless money sent to your account. An example of a loan where you will never “physically” see the borrowed money is an instalment purchase of goods arranged directly in a shop. In this case, you spread the purchase price of the goods over a longer period of time. If you buy goods on hire purchase, you are actually borrowing the money for the goods, in which case it is a so-called consumer linked loan.
How does it differ from a traditional form of credit? A consumer linked loan is designed solely to finance a particular good or service and is usually taken out directly with the trader at the point of sale. However, don’t be fooled – the retailer only arranges the service for you, you always enter into a credit agreement with the provider, i.e. a bank or other non-banking company. An example would be buying a mobile phone on hire purchase. If you buy it in an e-shop and want to change your choice, you can return the phone to the trader within 14 days, which will automatically terminate the loan. However, you must let the creditor know. If you bought the phone in a brick-and-mortar shop, you cannot cancel the contract. However, you can always repay the loan early.
It is relatively easy to cancel a consumer credit. “Unless it is arranged as a home loan, you can cancel it within 14 days of signing it without giving a reason. The notice of withdrawal must be sent in writing to the address of the credit company and the borrowed money must, of course, be returned,” says Eduarda Hekšová. She adds: “The period for returning the money is a maximum of thirty days from the date of withdrawal and you will only be charged interest for the time you actually had the money in your possession.”