Young adults and low-income earners face greatest risk of debt trap

Young borrowers and borrowers with low income run a higher risk of experiencing payment problems when they take non-mortgage loans, even if they only borrow small amounts. At the same time, the risk that consumers will get trapped in debt decreases if credit providers conduct thorough credit assessments. These are the conclusions of a new analysis from Finansinspektionen that is presented in conjunction with this year’s consumer protection report.

"Even small loans can lead to big problems. This is why it's important that credit providers really check that the loan can be paid back. This is an important protection, especially for young adults who otherwise risk entering their adult lives with large debt," says FI's Director General Erik Thedéen.

The analysis shows that young borrowers between the ages of 18 and 29 face the greatest risk of experiencing payment problems, regardless of the size of their income. This might be because young borrowers have weaker and more uncertain personal finances or they are less experienced at handling bills. Even borrowers with low income run a greater risk of experiencing payment problems since they have small margins in their personal finances. The analysis is based on all non-mortgage loans granted during a 10-day period in the spring of 2019.

The analysis also shows that small loans are more likely to lead to payment problems than large loans. This is because small loans are more often taken by young adults and persons with low income. In general, credit assessments for small loans are also less comprehensive.

If credit providers were to conduct thorough credit assessments using data that shows all of the consumer's loans, the risk of experiencing payment problems would decrease for all groups of borrowers. This indicates the need for a system where credit providers can obtain a comprehensive overview of the consumer's debts. This is not possible today, and it is something FI would like the government to investigate.

The risks associated with non-mortgage loans and insufficient credit assessments in particular are one area that FI will work with a lot in 2021 and that is highlighted in the consumer protection report. The second area is deficiencies in the duty of care on the investment and insurance markets. Financial firms are obligated to ensure that their products reach the right target group, and FI sees a substantial risk that consumers will be offered complex financial savings products that are not suitable.


Presentation to be broadcast live

The Consumer Protection Report and the analysis will be presented today by Director General Erik Thedéen via a live broadcast at fi.se at 10:00 AM.

Consumer Protect Report 2021
FI Analysis No 29, Why do some borrowers experience payment problems?

Digital Q&A for the media

Media representatives are invited to a digital Q&A with Erik Thedéen at 10:20 AM immediately following the presentation. The Q&A is only for representatives from the media and will only be held digitally via Zoom.

Time and date: Today, Wednesday, 24 February, 10:20 AM
Registration: To victoria.ericsson@fi.se. A link to the meeting will be sent to registered journalists.


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