Credit conversion – how much does it cost and is it worth it?

A few years ago, loans in a currency other than zloty were very popular in Poland. The reason for this was mainly the lower costs of incurring it. Many have not thought about the exchange rate risk of this type of liability. Exchange rate fluctuations cause us to start thinking about converting our commitment. For example: the rate of the Swiss franc, in which we took out a mortgage, strengthens in relation to the zloty in which we earn. Consequently, the monthly installment increases.

When we see that we are unable to pay installments in a foreign currency, we can start the procedure of converting our liability from the currency in which it was incurred into zlotys.

When is it worth converting a loan?

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We should remember, however, that currency conversion should take place when the change of currency allows us to lower the monthly installment and not increase it. Impulsive action can bring more loss than good.

It is worth thinking about currency conversion when the currency of our debt is cheap, but in the financial markets it is said that it may become more expensive. Then such an operation will be beneficial and even beneficial. This will allow us to avoid the currency risk associated with fluctuations in the exchange rate of one currency relative to another in the future.

Currency conversion of loans in francs

Everyone has heard about the dramatic situation of the frank-borrowers. Black Thursday 2015, when Switzerland released the franc exchange rate, and this caused the weakening of the zloty against the Swiss currency, which resulted in an increase in the monthly installment of a mortgage, e.g. by a mortgage, by several percent. A large proportion of debtors have ceased to be able to pay their liabilities.

The currency conversion of the loan was to come to the rescue. Interestingly, according to analysts, the borrower’s situation does not become absolutely trouble-free. He must repay two obligations. The first one is secured by a mortgage, the second concerns the amount calculated by the bank. It amounts to what remains after the debt has been written off. Its amount depends on the calculations made by the bank.

Currency conversion in francs – what would it look like?

Currency conversion in francs - what would it look like?

The calculations based on two indicators: DTI and LTV determine who belongs to the group of people who would have the chance to convert the loan. 10 percent of customers would be helped. They would no longer have to worry about fluctuating exchange rates.

President Andrzej Duda and political party leaders proposed their projects to improve the situation of indebted people. They assumed that all costs of this complicated operation (several billion zlotys) would be borne by banks. It is known, however, that the banking community was defending their arguments at the time. Those who decided on a loan in zlotys also took a vote on the matter – they would be victims. In addition, it was forecasted that a situation could arise in which several of the weakest banks in Poland would collapse. The management of PKO BP also made a proposal. This institution, which has an impressive portfolio of franc loans, wants to help those in the worst situation.

Currency conversion of the loan in euros

The described process also applies to money that is accepted in many European Union countries. Of course, we are talking about the official currency of the community. People who have decided on debt in euros are also keenly interested in currency conversion. This is despite the fact that these people earn on their decision. This applies primarily to those who were in debt at the end of 2011. Then the euro cost 4.42. Today, its value is about PLN 4.

Let’s return to the situation six years ago. People who were in debt at that time incurred costs lower by nearly PLN 16 thousand compared with debtors in PLN. However, they can be even more beneficial. So follows from the forecasts. However, the currency market is surprising. Therefore, it may turn out that currency conversion from EUR to PLN will be very unfavorable. The installment may then increase by an average of 19 percent. In this case, it is better to stay with the euro. The currency risk associated with it is much smaller than in the case of the Swiss franc.