People are ashamed of their consumer loans
But consumer loans are not the worst kind of loan you can have, researchers say.
What do we really think of when we think of consumer loans? Waste? Lack of responsibility? Heedless over-consumption?
But consumer loans are not the worst loan you can have. Credit card loans are often more expensive and riskier.
So why are we more likely to take out credit card loans and feel so ashamed of a consumer loan?
More than half are ashamed
In 2019, researchers at Oslo Metropolitan University (OsloMet) conducted a survey among Norwegian borrowers. They asked about the loans they had and what they thought about them.
Our status and attitudes affect the loans we choose.
It turns out that 57 per cent of those surveyed thought that loans to fund consumerism were the most shameful.
Lowest status on loan list
People think mortgages are the least shameful type of loan.
“The better the investments you make with the money you borrow, the more acceptable the loan is,” Christian Poppe, from Consumption Research Norway (SIFO) at OsloMet said to sciencenorway.no.
Poppe is one of the researchers behind the 2019 report on loans and people’s attitudes toward them.
Car loans and student loans also fall within an acceptable range.
But at the bottom of the list is the consumer loan.
Credit card debt rather than consumer loans
The fact that consumer loans were seen as shameful didn’t come as a great surprise to the researchers.
But the fact that credit card loans had a higher status than consumer loans, surprised Poppe and his colleagues.
“Credit card debt is accepted in a completely different way than consumer debt,” Poppe said.
This is despite the fact that both loans are what are called unsecured loans. They often have high interest rates and aren’t secured with collateral in the form of a home, a second home or a car.
Think it's easy and safe
Poppe believes it’s a problem that instead of taking out a consumer loan, people choose to take out a much more expensive credit card loan.
The reason may be that consumer loans are less flexible than credit cards. Consumer loans are supposed to be paid down over an agreed period with fixed instalments and at an agreed interest rate.
A credit card, on the other hand, is easy to obtain, easy to use and is perceived by many as safe, according to the survey.
But the loans in question are small, with high interest rates.
- On Monday 18 October 2021, Norwegians had NOK 152,326,695,879 in unsecured debt, which is roughly 15 billion Euros. That’s according to Gjeldsregisteret AS, a debt information company that helps banks and other creditors assess the amount of debt loan applicants already have.
- About 32 per cent of all adults between the ages of 18 and 80 have some form of unsecured debt.
- Norwegians use credit cards for travel (44 per cent), purchases of consumer goods (50 per cent) and unforeseen expenses (30 per cent).
- Consumer loans are typically used for more expensive items, such as car purchases (29 per cent), consumer goods (28 per cent) and renovations (12 per cent).
This is where the payment problems come from, Poppe said.
The best of the unsecured loans
“In principle, you can stay afloat by only paying the minimum amount due on your credit cards. Then you haven’t defaulted on the loan, but you may be in the process of creating a problem,” he says.
Poppe says credit cards are much more dangerous than consumer loans.
“We are facing a consumer loan paradox. I wouldn’t recommend that anyone take out a consumer loan. But if you have to take out an unsecured loan, a consumer loan is the cheapest and most predictable of the unsecured loan products,” he said in a press release (in Norwegian).
Shame from losing self-control
Why are Norwegians so ashamed of consumer loans?
Per Einar Binder is a professor of psychology at the University of Bergen.
He believes Norwegians tend to feel ashamed when other people see that our self-control is failing.
“This is the reason why we may feel ashamed if we notice that we have taken more for ourselves than other people at a party, or start laughing at the wrong place,” he wrote in an email to sciencenorway.no.
“Or we have total irrational shame over uncontrollable aspects of our body, such as a rumbling stomach or a hiccup we can’t stop,” he said.
The seven deadly sins
Binder says that consumer loans are often associated with satisfying immediate desires and not being able to wait.
And that easily makes us feel ashamed, Binder said.
“Of the seven deadly sins, consumer loans can evoke associations with greed, lust, gluttony and laziness — which we’re not talking about trifles,” he says.
Morality and status
Another source of shame for people is losing status.
“Finances are an important status marker for many, and taking out a consumer loan can make people feel as if they have failed financially,” he says.
Poppe also believes the feeling of shame has to do with morality.
“Borrowing for consumption and pleasure was seen by the informants in the survey as a sign of poor morals and lack of self-discipline,” he said.
A little shameful for the banks, too
Consumers are not only ones who are ashamed by consumer loans. The banks think they are a little shameful too.
“What is shameful for the banks is if they lend money to people with a gambling problem. People who waste their money,” Poppe said.
He says that just a few years ago, the big banks preferred to offer consumer loans 'quietly'. They left most of the consumer lending to small banks that specialized in it.
That meant the responsibility for these kinds of loans lay with small banks, while large banks could retain their good name and reputation.
“It seems as if the trend has reversed, and large banks are offering consumer loans more openly,” Poppe said.
Translated by Nancy Bazilchuk
Christian Poppe: Lånefinansiert forbruk i Norge anno 2019. (Loan-financed consumption in Norway in 2019) SIFO report no. 13-2019