Over-Indebtedness
From Open Risk Manual
Definition
Over-Indebtedness is the condition of a Borrower carrying a Debt amount that is beyond what they can reasonably expect to service.
Causes in Personal Finance Context
- lack of transparency of lenders’ terms and conditions
- limited Financial Literacy and Financial Capacity to manage finances
- desperation and need to meet essential living expenses
- psychological biases and mental shortcuts that affect consumers’ decisions and predictions about borrowing, e.g. Over-Confidence Bias, tendency to underestimate the probability of adverse event
- financial imprudence leading to poor financial decisions caused by an inadequate understanding of the real cost of repaying the loan
