The business of consumer finance providers in Germany is undergoing major change. The effects of the sluggish economy, and higher price levels, are clearly visible, as are the boom in „buy now, pay later“ (BNPL) services, shifts in consumer behaviour, and new regulatory requirements. Because weak economic conditions and declining real income are weighing on borrowers, banks have gradually increased their risk provisions for consumer loans in recent years, according to the Association of German Credit Banks (Bankenfachverband– BFACH)). „This goes hand in hand with overall economic trends,“ says Managing Director Jens Loa.

The association represents 48 financial institutions, including major banks and auto finance providers such as DKB, ING, Targobank, Santander Consumer Bank, S-Kreditpartner and Teambank. They finance consumer goods such as furniture, computers and cars for private customers and, in some cases, vehicles and machinery for businesses.

Although the association does not publish data on members’ loan-loss provisions, Teambank has been hit particularly hard. The DZ Bank subsidiary slipped into the red in the first half of the year, reporting a loss of 5 million euros, after posting a 19 million euro profit in the same period last year, because of higher provisions.

The outlook remains gloomy. Teambank’s unsecured consumer credit business, described by a bank spokesperson as „disproportionately sensitive to economic cycles“, is suffering as consumers curb spending amid geopolitical and economic uncertainty. There is also a noticeable shift toward smaller loans of under 1,000 euros.

Falling real income continues to affect borrowers’ repayment capacity, and rising unemployment adds to the pressure, the spokesperson said. As a result, loan loss provisions are expected to remain high. „The years 2025 and 2026 will remain challenging for Teambank,“ he added.

Teambank’s provisions have climbed steadily: 57 million euros in 2021, nearly 100 million in 2022, 133 million in 2023 and 205 million in 2024. DZ Bank CEO Cornelius Riese, who chairs Teambank’s supervisory board, explained in back in August 2024 that "people are getting poorer, disposable incomes are falling.“ And Teambank CEO Christian Polenz also noted in February that widespread uncertainty about the economy was weighing on consumer confidence.

Loa from BFACH is somewhat more optimistic about next year. While the market is currently moving sideways, he expects government measures to stimulate growth by 2026. „Then consumer financing will also pick up,“ he said.

Overall, the association’s member banks recorded new lending of 66.7 billion euros in the first half of 2025, unchanged from the previous year. While consumer lending rose 4.2% to 30 billion euros, investment financing fell 6.6% to 5.2 billion euros. Nearly half of all consumer borrowers were car buyers. Most loans came directly from banks (44%), with every third arranged through a car dealer.

One in four households pays for consumer goods in monthly instalments. „The common perception that mainly low-income households take out instalment loans is simply wrong,“ Loa said. The average net household income of borrowers is actually higher than the national average, about 3,420 euros per month or roughly 200 euros more than the German mean.

Despite potential risks, BaFin remains relaxed. „We are monitoring developments as part of our ongoing supervision,“ said a spokesperson. „But fundamentally, the consumer credit business does not pose an elevated risk.“ Last year, lending in this segment grew faster than loan loss provisions, and the share of non-performing loans (NPLs) declined.

The Bundesbank noted in its September 2025 monthly report that, while the weak economy could increase credit risks over time, the relatively small share of consumer loans in total household lending means the impact on overall NPL ratios and bank profitability remains insignificant.

According to Bundesbank data, consumer loan volumes totalled 236 billion euros at mid-year, about one-fifth of the 1.29 trillion euros in residential mortgages. Overall, German banks had extended 3.45 trillion euros in loans to private households and firms.

The credit agency Schufa also reports no significant rise in non performing consumer loans. The NPL ratio has remained stable, ranging between 2.1% in 2019 and 1.9% last year. However, the average monthly instalment has grown: in 2024, borrowers at member institutions of the BFACH paid 350 euros per month, 40 euros more than the year before.

Schufa warns, however, that the number of people showing initial payment irregularities, such as missed or late payments, rose 14% in the first half of this year, the largest increase since 2019. The agency also fears that consumers could overextend themselves by taking out multiple small loans. BaFin shares this concern, noting that „buy now, pay later“ services such as Klarna, PayPal or Ratepay can easily lead to debt traps.

„Consumers can more easily lose track of their monthly instalments and thus their total debt load,“ Schufa said. Its April survey found that roughly one in three BNPL users in Germany had missed a payment deadline and incurred a late fee.

The number of newly concluded instalment loans has surged in recent years, surpassing 10 million for the first time in 2024, up from just under 6.7 million in 2020. „This growth is largely driven by a sharp increase in small loans under 1,000 euros,“ a Schufa spokesperson said. These mini-loans rose by nearly 15% year over year in 2024 and now account for every second new instalment loan, compared with just one in five in 2020.

To protect consumers from overindebtedness, the EU has revised its Consumer Credit Directive, which must be transposed into national law by November and will apply from the end of 2026. Under the new rules, previously unregulated forms of credit, including loans below 200 euros or with terms under three months, will also require creditworthiness checks.

Loa welcomed the move, commenting that "comparable transactions with comparable risk profiles require comparable regulation. The revised directive brings BNPL business onto the same regulatory level as traditional consumer credit.“