Understanding why consumers fall behind on loan payments

On Behalf of | Oct 23, 2019 | Firm News |

Collections firms in Ohio and elsewhere work to collect unpaid debts through a variety of means. Understanding why consumers fall behind on loans in the first place can help collections agencies refine their techniques to make it easier for consumers to take care of debts with as little fuss and rigmarole as possible. 

City Lab offers insights into the reason behind loan defaults. While specific to car financing, their insights can apply to various financial situations. 

Unfair lending terms  

Because some people have no choice but to drive to get to and from work and elsewhere, they may have no choice but to accept high-interest auto financing. Often, such borrowers do not have much in the way income, nor do they have the best credit scores. Lenders are well aware of this fact, and some of them choose to capitalize on it. Some lenders and banks loosen loan requirements, making it easy for borrowers to be approved, but hard for them to keep up with payments. 

Young borrowers have poor financial habits 

According to American Banker, most delinquent consumers are younger than 30. At that age, most borrowers have yet to adopt healthy and sustainable spending and saving habits. Additionally, young consumers do not have much in the way of income, a fact that forces them to decide how best to divide their earnings between financial obligations. 

That said, older consumers aged from 50 to 69 also have more debt than they used to. A potential reason for this is that retired borrowers and consumers have higher healthcare costs than younger generations. Also, a retired individual may be on a fixed income and have to prioritize spending, leaving outstanding debts at the bottom of the list of financial priorities, which only leads to more financial struggles. 

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