A new study has revealed the most affordable European countries to take out a personal loan, with Luxembourg claiming the top spot.
Loan experts Lånea analysed data from Trading Economics, the Organisation for Economic Co-operation and Development (OECD) and Numbeo to create an index of the European countries most affordable for those wanting to take out a personal loan.
The findings subtracted consumption expenditure per capita from the typical salary in each country, to calculate the disposable income. The total cost of a personal loan repayment of 10% the average salary (plus the national rate of interest) was then calculated as a percentage of the disposable income.
This information comes at the perfect time, with many people setting an aim to save money and spend more frugally in 2024 – especially after the burden of Christmas spending.
Many will be tempted to get a loan to tide them over, but doing so in some countries will put you in a worse financial position than had you not taken out the loan in the first place due to high interest rates, poor annual salaries, and rising living costs.
In first place as the most affordable country for personal loans was Luxembourg with a personal loan repayment of £535.10 per month, equivalent to 18.98% of the average disposable income – the lowest in the study. This was based on a loan amount of £6,144.77 plus a national interest rate of 4.5% repaid over the course of a year.
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By GlobalDataThis was based on average living costs of £27,609.71 per year, and the average annual salary of £61,446.99, leaving an estimated disposable income of £2,819.77 per month, from which 10% of the annual salary plus the bank interest rate was deducted.
Ireland followed in second, with a personal loan repayment of 19.27% of the average disposable income, which equated to £341.28 per month. This was taken from a national interest rate of 4.5% on top of a personal loan cost of £3,918.95.
This was determined with living costs of £17,936.16 deducted from the average salary of £39,189.53, revealing an estimated monthly disposable income of £1,771.11.
In third was Denmark which had a personal loan repayment rate of 19.33% of the average disposable income, which corresponded to £401.01 per month. This was based on a £4,644.88 loan amount added to a national interest rate of 3.6%.
Denmark was revealed as having an estimated disposable income of £2,074.87 per month after the considerations of average living costs of £21,550.41 and a salary of £46,448.84.
Taking the fourth spot was the Netherlands with a personal loan repayment of 19.53% of the average disposable income, equaling £319.35 per month. This used a loan amount of £3,667.18 which was increased by a national interest rate of 4.5%.
This Netherlands had average living expenses of £17,054.52 alongside a salary of £36,671.80. This provided an estimated disposable income of £1,634.77 per month.
Rounding out the top five was the Czechia with a personal loan repayment of 19.85% of the average disposable income, amounting to £139.78 per month. This was deduced from a personal loan amount of £1,567.68 in addition to the national interest rate of 7%.
Living costs of £7,224.55 were subtracted from a salary of £15,676.76, disclosing an estimated monthly disposable income of £704.35.
In sixth was Sweden with a personal loan repayment of 20.12% of the average disposable income, which was the equivalent of £354.87 per month.
Following in seventh was Norway with a personal loan repayment of 20.40% of the average disposable income – the same as an average monthly payment of £481.25.
In eighth place was Estonia with a personal loan repayment of 20.50% of the average disposable income, corresponding to £154.53 per month.
Germany came in ninth with a personal loan repayment of 22.01% of the average disposable income, which amounted to a monthly sum of £295.70.
Concluding the top ten was Belgium with a personal loan repayment of 22.04% of the average disposable income, which equaled to £287.17 per month, cementing the country as one of the most affordable in Europe to take out a personal loan.
On the other end of the spectrum, the United Kingdom was identified as the worst country to take out a personal loan, with a personal loan repayment of 61.40% of the average disposable income. This corresponded to £249.95 per month, which was subtracted from an average disposable income of £407.11 per month.
Second to bottom was Greece with a personal loan repayment of 59.76% of the average disposable income, or £118.76 per month.
Just ahead was Montenegro with a personal loan repayment of 49.76% of the average disposable income, which amounted to £59.00 per month.
Next was North Macedonia with a personal loan repayment of 47.02% of the average disposable income, equaling £37.33 per month.
Rounding out the bottom five was Albania with a personal loan repayment of 42.96% of the average disposable income, the equivalent to £35.77 per month, revealing it as one of the worst European countries to take out a personal loan.
Andorra, Kosovo, Liechtenstein, Malta, Monoco, San Marino and Vatican City were omitted from the study because not all the necessary information was available.
Commenting on this, Lånea personal finance expert, Nina Appelgren, said: “There are lots of things to remember when taking out a personal loan, and each person’s unique financial situation must be considered. Credit scores, interest rates and repayment terms are all things to keep in mind.
“Make sure you understand the purpose of your loan and form a plan on how you intend to use the funds. If necessary, look for lenders that offer flexible repayment options, and be aware of any additional fees or charges that may incur during the application process.
“Compare different lenders and choose the one that is most suitable for you. Maintaining a good credit score will impact your ability to obtain a loan, but try not to borrow more than you need, or for a longer period than is required. Always ensure you can keep up with the repayments.
“Finally, it’s a good idea to read reviews to provide insight into customer service and satisfaction. Ensure you read the terms and fine print before you agree to anything.”
