Financial insecurity resulting from the coronavirus crisis could lead to an increase in defaults in Finland, according to credit data agency Asiakastieto. The company said, however, that there would likely be a delay before any new defaults were revealed.
According to Asiakastieto, around 390,000 people – 8.5% of adults – in Finland have defaulted on their bills.
The credit data agency has estimated that people who don’t have any default entries recorded against them have a 1% chance of getting one. He added that the financial insecurity caused by the shock of the coronavirus could increase the number of defaults, but that any change will likely become visible after a certain delay.
“There are a lot of people who are now over-indebted but they don’t have any defaults yet. If their income goes down, it will lead to even greater financial problems and defaults,” said the chief commercial officer of Asiakastieto. Jouni Muhonen noted.
He noted that the number of people in Finland with poor credit has been increasing steadily for 10 years. He attributed the increase to the fact that people tend to borrow from several different lenders. When monthly payments for cable channels, credits, and hire purchase contracts pile up, they may not have sufficient funds to meet all of their commitments. The popularity of payday loans has also made it easier for people to fall into the debt trap, Muhonen said.
Defaults can also increase if workers who have been temporarily laid off find themselves unemployed and their income is no longer sufficient for their daily expenses.
New interest cap could cause problems
Finland has tried to reduce household debt in several ways. In July, new legislation came into effect, introducing a 10% interest rate cap on consumer credit. At the same time, a ban on the direct marketing of credit products also came into force.
According to Minna backman, director of finance services with the debt counseling organization Guarantee Foundation, the interest rate cap has its pros and cons. This makes it more difficult for consumers to obtain loans and, at worst, could lead to defaults.
“People might have needless hardship because of a temporary need. If they could get some kind of loan, they might get over it. But if they can’t get credit, the situation may be wrong. ‘worsens until their finances are healthy.On the other hand, it might be good for the situation to escalate due to a bigger debt problem. [related] problems, ”Backman explained.
Payment defaults tend to pile up
Payment defaults remain in the credit register for an average of three years. However, according to Muhonen, it is common for a person to accumulate several poor credit entries, as one overdue bill can lead to another.
“The same person can have an average of 15 default entries. By the time a person gets an entry, he or she has already accumulated several different debts,” he added.
According to Backman, few people experience a single default.
“When the first entry comes in, people may think it’s the same whether they have one or five,” she noted.
Asiakastieto’s data indicates that men have significantly more defaults than women. There are also regional variations in the number of people falling behind on their financial obligations. In the Åland Islands, less than five percent of adults have recorded defaults, compared to almost 10 percent in the Päijät-Häme region.
Backman said regional differences are related to local employment opportunities.
“The higher the number of unemployed, the higher the number of unpaid basic bills, such as health care bills,” she added.
However, she pointed out that help is available for people who are having difficulty managing their debts. She advised people to get over any shame they might feel and map their financial situation.
“Getting into debt is human and that doesn’t mean you are a bad person. There may be unemployment, illness or divorce behind it all,” she noted, adding that defaults are not. not always caused by negligence.