It has already been announced that the new draft of the consumer Credit Law changes the structure of the consumer credit market, and financial institutions will have additional consumer data obligations. These changes aim to strengthen consumer protection and ensure that financial decisions are made responsibly and consciously.
The regulation of advertising becomes another layer of these changes – it defines how financial services will be presented in public and what information can be used in interaction.
Emotions are replaced by rationality
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One of the most meaningful changes is the change in the tone of advertising. The new rules restrict excessive emotionality and communication that could encourage impulsive borrowing.
“Until now, different forms of communication were allowed in consumer credit advertising – including emotional narratives. With the entry into force of the new requirements, the criteria for evaluating advertising are changing, and the market will have to ensure that public information is rational and restrained,” says A. Vaišnorė.
If the changes in the tone of advertising are related to how consumer credit is discussed, another significant change concerns the form of advertising itself. communication methods in which credit is depicted as a means of solving personal problems may often no longer meet the new requirements. Instead, advertising will have to rely on rational information –
Risks to Consider Before Borrowing
Understanding the Risks of Debt
Borrowing money carries inherent risks that can substantially impact an individual’s financial well-being, ranging from potential damage to credit scores to the possibility of asset loss.
these risks stem from the obligation to repay the borrowed funds, typically with added interest, within a specified timeframe. Failure to meet these obligations can trigger a cascade of negative consequences. The specific risks depend on the *type* of borrowing – credit cards, personal loans, mortgages, payday loans, etc.- and the terms of the loan agreement.
As of January 20, 2026, the average interest rate on a 36-month personal loan ranged from 7.5% to 20.5% according to the Federal Reserve, demonstrating the potential cost of borrowing.
Credit Score Impact
A credit score is a numerical representation of an individual’s creditworthiness, and borrowing – and *managing* that borrowing – directly affects it.
Missed payments, high credit utilization (the amount of credit used compared to the total credit available), and defaults on loans all negatively impact a credit score. A lower credit score can lead to higher interest rates on future loans, difficulty obtaining credit, and even challenges in securing employment or housing.
According to the Federal Trade Commission, consumers are entitled to a free credit report annually from each of the three major credit bureaus (Equifax, Experian, and TransUnion), allowing them to monitor their credit health.
Interest Rate and Fees
The interest rate is the cost of borrowing money, expressed as a percentage of the principal amount. Higher interest rates increase the total cost of the loan.
Beyond interest, borrowers must also be aware of potential fees, such as origination fees, late payment fees, prepayment penalties, and annual fees. These fees can add significantly to the overall cost of borrowing. Payday loans, in particular, are notorious for extremely high fees, often expressed as an Annual Percentage Rate (APR) exceeding 300%.
The USA.gov website provides information on common financial fees and how to avoid them.
Debt Cycle and Over-Indebtedness
Borrowing to repay existing debt can create a risky debt cycle, where individuals become increasingly reliant on borrowing to meet their financial obligations.
Over-indebtedness occurs when an individual’s debt burden becomes unsustainable, leading to financial stress, difficulty meeting basic needs, and potential bankruptcy.The U.S. Department of Justice provides resources on bankruptcy options.
In 2023, total household debt in the United States reached $17.06 trillion,according to the Federal Reserve Bank of New York, highlighting the scale of the issue.
Risk of Asset Loss
Certain types of loans, such as secured loans (e.g., mortgages, auto loans), are backed by collateral – an asset that the lender can seize if the borrower defaults on the loan.
If a borrower fails to make payments on a secured loan, the lender has the right to repossess or foreclose on the collateral, resulting in the loss of that asset. This can have devastating consequences for the borrower.
The U.S. Department of Housing and Urban Growth (HUD) offers resources for homeowners facing foreclosure.
