Financial institutions usually offer different tools so that users who have difficulty paying taxes can have other alternatives, which are mainly used when the economic situation of the country is in its most difficult points.
Such was the case in the third quarter, in which, according to the results of the quarterly survey on the credit situation in Colombia, starting from September 2022, carried out by the Bank of the Republic, Of the banks surveyed, 86.7% said that credit term extensions were the most widely used credit modification measure, followed by grace periods at 40%.
This trend has not only been evident in banks, in to finance companies and cooperatives the deadline extensions of credit They were also the most used modifications, with 50% and 100%, respectively. “Debt term extension occurs when a debtor experiences payment difficulties or at the initiative of financial institutions for certain customers,” says Wilson Triana, a bank and insurance expert and consultant.
However, great care must be taken when making these decisions, because although for many users it represents a relief, in the long run it can mean the growth of debt.
“Unfortunately, the lack of financial education makes you confuse the credit balance with the current value of the debt and think you can alter the initial credit conditions, so it is a very serious mistake to reduce the installments and lengthen the duration” says Diego Palencia, vice president of research and the strategy of Solidus Capital.
In many cases, these decisions do not solve the temporary liquidity problem to pay the installments, but rather aggravate the duration of the credit, to the benefit of users.
These changes are somehow related to the inflation that the country has gone through in recent months. According to the data of Danishfor September of this year, the same month as the interruption of the Banco de la República investigation, The cost of living in Colombia recorded an increase of 0.93%, which for the cumulative 2022, including October data (0.72%), represents the highest inflation in recent years.
“Cash flows quietly liquefy as inflation rises rapidly. This flow does not allow capital to be paid at the same rate as in the past and generates significant distortions of the capital and of the historical share”, underlines Palencia.
While this is behavior that has been seen before, it is believed that it may now occur more rapidly, “normally, during a 20-year loan, at least five high-inflation events can occur that alter the mathematical sequence of credits, but the current it will be the fastest and most complex in history”, concludes Palencia.
Experts agree that these types of decisions are made without adequate financial education, so they recommend not making decisions quickly and establishing a cash flow that adjusts to the client’s new reality, as well as making an effort to reduce expenses to be able to pay on the established dates and, therefore, reduce debt and interest payments.
