A loan must only be taken out if it fits within the budget of a household. Knowledge of finance is used to establish responsible loan amounts.

Borrowing and well-being

By borrowing money, people can increase their well-being. Households can consume more than is possible on the basis of their current income. On the other hand, the costs associated with borrowing money are alleviating. These are not only the financial costs of paying back afterwards, with interest. It is also the psychological burden of a monthly commitment, and the risk ultimately not to be able to meet those obligations. From a welfare point of view, both aspects of borrowing must therefore be in balance.

Does a loan fit within the budget?

A loan must only be taken out if it fits within the budget. That is why finance refers to the considerations that people should make before the decision to borrow is made. A loan involves a monthly repayment obligation, often for a longer period of time. The fixed costs will be higher and the free spending will be lower.

When the costs of a loan and the expenses necessary for the household are higher than the current income, financial problems arise. The burden of the loan is no longer paid, or the necessary expenses have to be cut. For many consumers it is difficult to estimate the costs associated with a loan in advance. Nearly half of the loan ultimately experiences the loan as a burden, according to finance research.

Legal protection and codes of conduct

It is therefore important that there are measures to protect consumers who want to take out a loan against excessive costs. One of those protection measures is the Financial Supervision Act. It states that the lender is responsible for ensuring that no over-crediting takes place.

What is or is not seen as over-crediting is laid down in codes of conduct from lenders. These are the Association of Finance Companies (VFN), the Dutch Banking Association (NVB) and the Dutch Association for Home Shopping Organizations (TWO).

The Netherlands Authority for the Financial Markets (AFM) uses these codes of conduct as a guideline for enforcing the law. Part of these codes of conduct are the reference figures of finance.

Content of codes of conduct

When determining which loan is justified, lenders look at:

  • An amount that everyone should at least keep for the cost of living. This amount differs per household situation and is based on the minimum example budgets of finance;
  • The actual housing costs (rent, mortgage);
  • The burden of existing credits;
  • An extra release at a higher income.

Tailored advice

finance can advise lenders whether the burden of credit for customers is appropriate and desirable.

If you want to know more about this, please contact one of our experts, Marcel Warnaar or Jasja Bos . You can also submit your question via the general finance contact form.