Al-Madinah daily

Many people take out loans without rationalizing their expenses. Such careless loans do not provide them with any added value; on the contrary, such loans increase their spending which leads to an artificial increase in demand for commodities. Many have racked up debts and after factoring in fees and penalties, have ended up repaying significantly more money than they borrowed. Over the past two years, consumer loans hit SR340 billion. The growth of consumer financing at the expense of investment financing helps banks and finance institutions make significant profits.

The methods used to guarantee the repayment of personal loans have become more secure as banks mortgage the salaries of employees and receive monthly installments in return. This is a negative indicator showing that people rely on consumer finance more than investment finance. If companies get investment loans for their projects, they will make profits and inject money into the national economy, not to mention create job opportunities for Saudis.

The rate of consumer loans has increased and so has the rate of defaults on repayment. Many people have not been able to repay their loans because of the higher cost of living. The cost of energy, such as that of gasoline, has also increased, further adding to the burden on limited-income families.

I encourage people to take consumer loans but only for the purpose of buying a car, house or something that will add value to their lives. I do not encourage them to take loans for travel or for buying a luxury car or jewelry. One can get a consumer loan easily because banks compete with one another to attract customers by asking them to transfer their salaries to the bank. But remember that getting a loan is a one -way street and there is no way to not repay it. It’s also worth keeping in mind that real estate loans are nearly impossible to get if you have an existing loan.

I hope the Saudi Arabian Monetary Agency (SAMA) finds a solution to the problem of consumer loans so that people can repay them on time. In my opinion, SAMA has not raised awareness on the importance of saving and living within one’s means.