Greatest risk for repayment problems at so-called instant loan firms

This is the fifth time FI has conducted its consumer credit survey. Our surveys indicate that some things are improving. Fewer people with low income are taking out large loans, and their percentage decreases every year.

At the same time, there are still many borrowers with low income who may borrow large amounts. Almost five per cent of all new loans in the survey of more than SEK 100,000 went to people who earn less than SEK 15,000/month after tax. The survey also shows that almost 20 per cent of the people granted a new unsecured loan did not have any money left after paying for their monthly subsistence costs. This indicates that lenders are conducting insufficient credit assessments too often.

Lenders must conduct thorough credit assessments with sufficient information to assess the borrower's repayment capacity. This is important to avoid future repayment problems. FI is reviewing this on an ongoing basis. In June, FI issued warnings and administrative fines to banks for deficiencies in specifically their credit assessments for large unsecured loans.

"There is a risk that poor credit assessments will put consumers in debt traps, and firms have to be better here. Given the current state of the economy, we are also seeing a high risk that more people will experience repayment problems in the near future. When inflation increases and interest rates go up, many of the people who received loans despite their small margins will find it difficult to cover all their expenses," says FI's Acting Deputy General Susanna Grufman.

The percentage of borrowers who have difficulty paying back their loans varies between borrower types. The largest percentage is among borrowers at consumer credit institutions, which are firms that previously were called instant loan firms. Almost one out of six of their borrowers receive a collection notice. This can be compared to the major banks, where only one out of around 300 of their borrowers receives a collection notice.

One reason for this is that consumer credit institutions issue loans to people with smaller margins in their finances – young adults, people with low income and borrowers who have a record of non-payment. Previous analyses from FI also show that people who borrow from consumer credit institutions run a 20 per cent higher risk of having their debt registered with the Swedish Enforcement Authority than people who borrow from a major bank.
"Given that the so-called instant loan firms target groups with small margins, they bear a great responsibility to only approve loans for people who can afford to pay the loans back," says Grufman.

On 1 January 2023, FI is taking over supervision of the credit assessments for the consumer credit institutions and will therefore continue to review these firms closely.

Another conclusion from this year's survey is that it is likely that borrowers with a recent collection notice will receive a collection notice even for the new loan. Among those who opted for an interest-bearing invoice, a collection notice was six times more likely if the invoice holder had recently received a collection notice. This shows that lenders need to consider previous repayment problems before approving a loan.