The Central Bank of Cyprus (CBC) has issued a cautionary message to borrowers, urging them to exercise caution and make informed decisions when selecting loan terms, considering the current surge in interest rates.
Highlighting the significant rise in borrowing costs for households and businesses due to the global upward trend in interest rates over the past few months, the CBC emphasised the need for borrowers to be mindful of the potential impact on their repayment capacity.
Since July 2022, the European Central Bank (ECB) has raised its basic rates on seven occasions, propelling lending rates to unprecedented levels following an extended period of historically low rates. This rapid increase has sparked concerns about borrowers’ ability to manage their loan obligations.
The CBC specifically advised borrowers to carefully evaluate the interest rate schemes available, whether flat or floating, recognizing that interest rates are not static but subject to fluctuations. Additionally, it stressed the importance of thoroughly examining loan contracts, including the total monthly instalment over the entire loan duration, and considering the interest rate cycle before opting to “lock” their loan, especially in the case of flat-rate loans.
“Interest rates are fluctuating on the basis of the prevailing macroeconomic conditions of the time. For this reason, borrower decisions on the characteristics of a loan contract should be taken following research, analysis and concern,” the CBC said in a press release.