How loan delinquencies affect your business

As loan delinquencies rise and borrower expectations shift, embedded payment protection isn’t just a nice-to-have — it's a must-have to help minimize risk, as well as to grow and improve consumer relationships.

Mitigating risk is key. And research indicates that 82% of consumers indicated they would be interested in payment protection if they were made aware it was offered.¹

Reasons for loan delinquency

When hardship hits, loan payments may fall by the wayside. A survey of American adults tells us that only 55% have three months of savings at the ready. So even a minor disruption in income — like a medical emergency, car repair or temporary job loss — can push families into serious financial hardship and vulnerable to debt delinquency.² Consumers who fall behind may take out additional debt to cover missed payments, thereby multiplying their obligations.

A recent study shows that financial strain can impact multiple areas at once and can happen multiple times; most families that struggle with bills have trouble three to four times per year, while 12% have trouble more than 12 times per year.³

How lenders go from risk to response

Lenders are becoming more proactive when it comes to managing risk. Even with strong systems in place, some borrowers may still miss payments or default, and that affects both the borrower and the lender. Tools like credit scoring can help lenders make informed decisions while continuing to extend credit to qualified borrowers.

Traditional credit scores offer a starting point, but they don’t always capture the full picture of a person’s financial situation. That’s where artificial intelligence (AI)-driven credit scoring could make a difference. By analyzing large volumes of data quickly and accurately, AI may work to help lenders make faster, more reliable lending decisions with a broader view of each borrower’s potential.

Alternative data sources

Alternative data sources offer a valuable opportunity to back up traditional credit scoring methods, allowing lenders to make more informed decisions and extend credit to a broader range of applicants.

• Social media activity: Social media platforms contain plenty of information about users’ lifestyles, interests and connections. Analyzing this data can offer insights into a person’s spending habits, employment status and even personality traits that traditional credit reports overlook.
• Bank account transactions: Through consumer-permissioned access, applicants can voluntarily and securely share their bank transaction data with lenders. This offers a granular look at a person's behavior, capturing spending patterns and cash flow dynamics. Analyzing this information helps lenders more accurately assess an applicant's income stability, debt management skills and likelihood of default.
• Utility payments: Timely payments demonstrate responsible financial behavior and reliability. Consistent utility payments reflect a stable living situation and may positively influence credit scores.

Embedded payment protection

Embedded payment protection, like credit insurance, debt cancellation or payment pause features, offers borrowers reassurance and a safety net in the event of hardship like covered job loss or a covered medical emergency. And for lenders, it’s a portfolio protection tool that reduces charge-offs and improves customer loyalty.

Learn more about TruStage™ Payment Guard Insurance payment protection.