Over-Indebtedness

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