How economic pressures can impact digital lending today
As digital lenders plan in today's economy, providing Payment Guard Insurance can help borrowers facing the inability to repay loans due to unforeseen events.
Lending is the lifeblood of the economy, facilitating investments, consumption and economic growth. However, lending activities are inherently tied to the prevailing economic conditions, with shifts in economic indicators impacting borrower behavior, creditworthiness and lender risk appetite. Economic pressures, ranging from inflation and interest rates to unemployment and GDP growth, exert profound effects on lending markets, influencing both the supply and demand sides of the lending equation.
The relationship between wage growth and inflation
Wage growth is another key factor influencing the ability of individuals to repay loans. Nearly 58% of respondents to our survey said they were either somewhat or very concerned that unexpected expenses may come up, which would affect their ability to repay a loan.¹ Digital lenders rely on accurate assessments of borrowers’ financial capabilities, and stagnant or declining wages can pose challenges. Changes in income levels can affect the overall creditworthiness of potential borrowers, influencing the risk profile of digital lending portfolios.
To adapt to fluctuations in wage growth, digital lenders should employ sophisticated algorithms and risk management practices to ensure responsible lending. Adjusting traditional credit scoring models and loan terms helps these platforms strike a balance between risk mitigation and providing access to credit for a broader segment of the population. In fact, more consumers today say they are likely to look at different term lengths (28% in 2023 vs. 19% in 2019) and different types of loans (16% in 2023 vs. 12% in 2019) than what they were originally considering.¹
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