Russians rushed to pay their debts ahead of schedule: what’s the catch?

Analyst Belyaev: “Our consumer appetites are growing faster than real incomes”

The multi-million army of Russian borrowers finally has a reason to be proud. According to banking statistics, last year they set a record for early repayment of their loans. Every 5th bank client repaid consumer loans ahead of schedule – 21%. Although the share of early repayment of loans in 2022 was only 18%, and in 2020-21 it was 9%.

Of course, it’s great that more and more Russians are paying off their debts ahead of schedule. But statistics of a completely different kind appear in the press more often. That from January to September last year, the number of loan defaulters increased by 22%. That over the past two years, the share of bank clients who have 5 loans or more has almost doubled.

In general, it is clear that the debt burden of the population is growing, the debt bubble is inflating more and more. And there is a real threat not only to domestic credit institutions, but also to the country’s economy as a whole.

But, apparently, the fears are somewhat exaggerated if, according to the Scoring Bureau, almost every 5th borrower repaid his loan ahead of schedule and there can be no claims against him from the banking community.

In numbers, it looks like this: in 2023, 11 million loans were closed ahead of schedule – almost 64% more than in 2022. At that time, there were only 6.8 million such financially obedient Russians.

Experts believe that such dynamics were facilitated by the stabilization of the country’s economy and the improvement of consumer sentiment in society. Perhaps the fact that law-abiding Russians, fearing further changes in the terms of the contract for interest payments (such cases have happened in banking practice), tried to “zero out” their obligations to the bank at the first opportunity, also played a role. And, as we see, many succeeded. Although it must be admitted that the creditors themselves are often not happy with early payments – as the regulator has repeatedly pointed out.

“From the point of view of borrowers, early repayment of a loan is good,” says Candidate of Economic Sciences, financial analyst Mikhail Belyaev, “People relieve themselves of the credit burden. And they can sleep peacefully and satisfy their consumer needs from current income. After all, there will no longer be deductions from them on the loan. But there is one nuance here. You should carefully review the terms of the contract. You need to close the loan completely, down to the last ruble. Moreover, to be on the safe side, it is even better to take an official document from the bank about repayment. If there is at least one outstanding ruble, it will be considered late.

– Are such over-responsible borrowers profitable for credit institutions?

– On the one hand, yes. The bank will not have an increase in overdue debt, which has a negative impact on its macroeconomic indicators. After all, he reports to the Central Bank on them.

On the other hand, there is also a negative point. Funds repaid from loans to banks must be placed in other income-generating operations. And they receive less profit due to early repayment.

– But where did such a surge in early payments come from, why did people suddenly decide to completely settle accounts with the bank?

– As is known from official statistics, real wages in Russia in 2023 increased by 8% on average. Accordingly, many people have the opportunity to “pay and forget.” By the way, this is a classic case. In the West, it is generally believed that during periods of inflation it is profitable to take out a loan. For the reason that wages there are indexed annually and grow. But the credit deduction remains constant – the same one that was agreed upon when concluding the contract. The borrower covers the loan with depreciating money. Our situation in this regard is different, but income growth last year played an important role.

– It’s no secret that many borrowers repay the loan ahead of schedule in order to take out the next one from the bank. Is this the right tactic?

– No. After all, a new loan will probably already be provided on less favorable terms. Banks increase interest rates on loans due to an increase in the key rate. But what to do? Our consumer appetites are growing faster than real incomes. It is for rich people that their incomes outstrip their needs, while for the middle class it’s the other way around. I’ve just gotten back on my feet, gotten stronger, and I immediately want to change my apartment, do good renovations there, and buy some expensive items. Where can I get the funds? Only at the bank.