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What is Happening to Loans in Europe?


As the world emerges from a pandemic, ongoing political instability, and financial changes such as Brexit, questions about the changing loan market landscape in Europe have arisen. How have changes in the world affected interest rates? Are loan amounts increasing? How has the pandemic affected European financial markets and the loan markets of Lithuania and Scandinavia?

Have world conditions helped some in the financial world while hurting others?

What should consumers and small to medium business enterprises expect when loans are needed?

Here we’ll examine the loan markets of Europe, focusing on Lithuania and Scandinavia, and the factors that will affect the availability of loans and the interest that will be charged.

Interest Rates

In 2014, the European Central Bank cut interest rates on loans and mortgages during a sovereign debt crisis to below zero with the intention of raising them in a few years. The COVID-19 pandemic and the damage it inflicted upon the economies of Europe, Lithuania, and Scandinavia changed that, making an interest rate hike impossible.

Currently, the European Central Bank lists a mortgage rate of 1.31 percent and a short-term interest rate of –0.563 percent. That makes the past several years as well as the present an attractive time for Europeans to borrow money from banks as well as through fintech services such as Saldo.

Loan Amounts

With interest rates this low, it is no wonder that consumers in Europe, Lithuania, and Scandinavia are taking advantage of low interest rates. The European Central Bank reports a 97.5 percent rise in the household debt ratio in the fourth quarter of 2020, suggesting higher loan amounts.

Some Europeans and European business owners may be borrowing small and medium amounts of cash to deal with hardships incurred during the pandemic shutdowns, but we think it is also because loans are particularly attractive right now for consumers.

Pandemic’s Effect on European Financial Markets

As Europe emerges from the COVID-19 pandemic, European financial markets are poised to fuel a comeback. In the pandemic’s early days, capital markets lended more than 370 billion Euros to companies throughout the European Union, Lithuania, and Scandinavia as well as 300 billion Euros in net bank lending.

These capital markets are adding scale, flexibility, and diversity of funding to companies and are helping fuel Europe’s pandemic recovery.

Not only are capital markets providing the funds European businesses and consumers need to recover from the pandemic, but they are also showing potential for dramatic growth in the future. An estimated additional 4,000 companies in the European Union could raise an additional 470 billion Euros per year, which would reduce governments’ reliance on lending.

If this growth occurs as vaccines help stop the spread of COVID-19, the EU and its businesses and consumers should see brighter days, more jobs, an influx of tourists, and a positive economic forecast for 2021 and beyond.

Lithuania and Scandinavia

Lithuanian households are emerging from the COVID-19 pandemic in better financial condition, which bodes well for the future. The number of Lithuanian households experiencing financial difficulties has decreased by 1.4 percent during the last year, and an increasing number of families are considering large purchases.

With EU backing for micro-loans in Lithuania, growth is expected to increase in the region along with jobs. New small to medium-sized business enterprises are expected to result from these small infusions of capital.

Scandinavia weathered the pandemic better than most. Sweden, which did not order the shutdowns other countries did, saw economic contractions in 2020 that were less severe.

Sweden’s gross domestic product decreased by 8.9 percent in 2020, but that was less than the 11.9 percent decrease experienced by the European Union.

In contrast, harder-hit countries with stricter shutdowns saw more dramatic losses. Spain, for example, saw a GDP reduction of 18.5 percent.

These economic indicators suggest future growth in Lithuania and Scandinavia and firmer footing for consumers in these areas post-COVID-19.

Winners and Losers

Some financial organizations in Europe have benefited from the COVID-19 pandemic, related shutdowns, and behavioural changes among Europeans. Fintech firms such as Saldo are seeing growth during this period because they offer loans online, so customers don’t have to risk their health to go to a public bank during shutdowns.

Interest rates at historic lows are bringing more consumers to fintech services for small and medium loans. Economic stress including job losses and shutdowns prompt some consumers to take out loans, while others borrow to set up home offices or because the cost of loans is historically low.

Agile companies that have services offered online are among the winners emerging from the COVID-19 pandemic. Fintech companies were already in a growth trend before the pandemic. Now, post-pandemic consumers are used to doing their banking and borrowing online or through a smartphone app.

Brick-and-mortar banks are among the losers in this post-pandemic economy since interest rates are low, but their services are tied to physical locations, which can fall victim to pandemic shutdowns. Not only that, but customers of Gen X age and younger have broken the habit of going inside a bank building for their financial needs.

The Bottom Line

Loans in the European Union are in the consumers’ favour right now. Interest rates are historically low, and fintech companies such as Saldo make borrowing money something that can be done with a smartphone or a laptop computer.

Guarantees from the EU for smaller loans, liquidity of cash in European capital markets, and signs among European consumers that they are emerging from the COVID-19 pandemic with an interest in making larger purchases makes the financial outlook for EU economies optimistic.

With the worst days of the COVID-19 outbreak hopefully behind them, European consumers and businesses are emerging more confident about their economic future and their ability to repay loans.

With low interest rates, the smart time to borrow in Europe, Lithuania, and Scandinavia is now. Fintech companies such as Saldo make obtaining those loans fast and easy.


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