Personal loans… her money and what she has

By: Mohammed Hassan Mohammed Al-Naimi

The Kingdom of Saudi Arabia has recently witnessed a significant increase in personal loan rates for individuals from banks. As a result of the expansion of banking facilities granting them, consumer loans and credit card loans from commercial banks increased by 6.0 percent to reach about 474.6 billion riyals by the end of 2022, compared to about 447.9 billion riyals at the end of 2021, according to official figures of the Central Bank of Saudi Arabia.

Unfortunately, the figures are likely to increase in the coming years in light of the frantic race of banks to achieve record profit rates. They do not take into account the size of the physical and social risks due to the loss of solvency of loans, as long as the volume of profits from loans is high, and far exceeds the size of any potential risks, and therefore banks are not expected to stop competing to attract customers through competitive lending policies that include new temptations, both in the facilities granted or in the time frame for loan recovery. In addition, they perpetuate consumer patterns and overspending, opening the door wide for customers to squander money that exceeds their repayment capabilities. To cover the inability of their income to meet some of their living requirements.

And here I do not deny that personal loans are a reason to stimulate the economy and increase spending, as long as within reasonable limits they can also be used to support small businesses, create new jobs, improve the standard of living of individuals by saving money. To buy a house, a car or any other need. But I cannot ignore its adverse effects on individuals and the economy in general; the increase in personal debt for individuals leads to a decrease in their ability to meet their needs. It increases the risk of borrowing, which is reflected in purchasing power.

Other than the social impact on society, when a person loses his job or faces emergency circumstances, personal debts increase like black clouds that overwhelm him, making him live in a state of constant anxiety and stress, and he finds himself mired in a sea of worries that negatively affects his mental health, and then he loses his usual purchasing power. The rise in personal loans also causes an increase in demand for goods and services, which increases inflation and leads to a decrease in savings. This, in turn, may affect future investment. It may lead to financial instability, especially in the event of an economic crisis for individuals.

To mitigate the negative effects of the rise in personal loans, individuals should be careful not to borrow only out of necessity and compare the offers of different banks before taking out any loan. Make a plan to repay the loan as soon as possible to avoid the accumulation of interest, as individuals should not borrow more than their ability to repay to avoid getting into financial problems.

Finally, the rise of personal loans to individuals from banks is a worrying phenomenon. Still, its negative effects can be mitigated by spreading awareness about its risks and educating individuals on how to manage their money properly.