Saturday 22 October 2016

We risk making same mistakes as loose lending comes back

Published 17/01/2016 | 02:30

Too much debt has bedevilled us over the last eight years
Too much debt has bedevilled us over the last eight years

We are at risk of losing the run of ourselves again when it comes to borrowing. Households are only seeing tentative signs of a recovery, but already there are indications of a return to the type of loose lending that caused so much over-borrowing and financial pain in the past decade.

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Some of the motor finance deals in the market have a distinct whiff of the disastrous Celtic Tiger era about them.

Many of the new personal contract plans (PCP) boast very low interest rates, or even zero interest. They allow people to finance a brand new car for as little as €300 a month.

But are people really aware of the implications of these complex deals? They are essentially souped-up hire purchase deals, and in essence you are just renting the car until you pay off every last cent owed.

With some of these you pay nothing for a year, the sort of offer that may prove too tempting. These finance arrangements come with complicated terms and many are not even regulated by the Central Bank.

Then there is the fact that two banks - Bank of Ireland and Permanent TSB - are now offering cash-back deals for those who take out a new mortgage with them. This sees a new buyer or a switcher getting €2,000 back in cash on each €100,000 borrowed.

People love cash in the hand, but these cash-back gimmicks hide the fact that you may be better off forsaking the cash and taking out a mortgage with another bank with lower interest rates.

And AIB was forced to deny recently it was being irresponsible when it emerged it was offering fast turn-around loans of up to €30,000 for those who want to fund a trip to this summer's Euro soccer championships in France.

Too much debt has bedevilled us over the last eight years.

There is every risk that ordinary consumers will make the same mistakes they made in the past when banks and other financiers pushed too much debt on them, on terms that were too easy. Look how that ended.

If you want proof of our vulnerabilities look no further than the two surveys published last week showing very low levels of financial literacy. People are unclear when it was appropriate to borrow money and do not know what a credit report is and how it works.

The only way to get around this is for our regulators and official watchdogs to be far more assertive and forthright about the risks consumers are taking on.

The Central Bank has been telling us for ages now that it is reformed, and is now has a tough, intrusive and sceptical ethos. Well, let's see those teeth then.

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