Making Confident Financial Decisions in Changing Times

A survey conducted by Kantar Emor at the end of last year revealed that nearly a quarter (23%) of Estonians who have taken out small loans in the past three years are willing to use additional financing if necessary, while 46% do not see themselves taking out loans in the future. According to Priit Pekarev, Head of Retail Banking at Holm Bank, the reason may be uncertainty about the stability of their income.

"The end of last year and the beginning of the new one have put people in a somewhat waiting position. They are cautious due to the increase in tax obligations – car tax needs to be paid, land tax, VAT, fuel excise duty, and other obligations are rising," comments Priit Pekarev on the results.

Insurance Mitigates Risks

"People have likely taken a cautious stance to see if and how the tax increases might affect their ability to repay loans – such responsibility is entirely commendable. Banks assess people's repayment ability based on specific indicators when making loan decisions. Equally important is the self-analysis of borrowers, as each person knows their job stability and financial outlook better than any bank could," says Pekarev.

He notes that the desire to protect oneself from unexpected events is entirely understandable. "I recommend considering loan payment insurance, which is designed to protect individuals in unexpected situations, such as job loss or disability. In such cases, the insurance company pays the loan instalments on behalf of the person. Signing an insurance contract simultaneously with the loan agreement gives the person peace of mind that financial obligations will be met even in difficult times," explains the Head of Retail Banking at Holm.

Interest in Insurance Growing

According to Pekarev, the conditions offered by banks and insurance companies may vary somewhat, but insurance generally covers situations such as involuntary unemployment and long-term sick leave, as well as situations where one has to care for a sick child for an extended period. He emphasizes that people should familiarize themselves with the terms of both the insurance and loan agreements before signing. "Financially, the insurance premium is usually a few percent of the monthly loan payment, which can be paid along with the loan repayment," says Pekarev.

Veiko Sepp, Head of the Baltic Property Insurance Product Unit at If Insurance, acknowledges that the popularity of loan payment insurance has grown year by year. "On the one hand, this is due to increased awareness among people – more and more understand why insurance is important. On the other hand, people's attitudes are also influenced by the general economic and social environment, where future uncertainty forces people to think more carefully about their financial decisions. This is a positive trend, as a sense of security is something everyone needs. Well-considered risk management and timely insurance are effective ways to ensure one's sense of security," explains Sepp.

According to the Kantar Emor survey, 18% of the Estonian population has taken out small loans in the past three years, mainly working-age people aged 25-49.