Is this another sign of the crisis? The number of over-indebted people reached a record 324,063 in September 2012. The percentage of defaulting borrowers is now 5.2%. This means that out of 100 loans granted, credit institutions record a 5.2% default rate. This leads the said institution to report the credit to the National Bank of Belgium.
Evolution of the number of over-indebtedness cases
This number, in truth, changes little. Indeed, if there are more over-indebted citizens, it is also because there are more credit contracts registered.
The proportion of defaulting credit contracts has remained stable. However, the average amount of unpaid debt has increased by 2,000 euros in 5 years. In 2007, when a Belgian had a debt, it averaged around 6,000 euros. This figure has risen to 8,000 euros today.
The situation varies by region. Payment defaults affect 8.1% of Brussels borrowers, 6.9% in Wallonia, and 3.5% in Flanders. While the percentage of over-indebted borrowers is lower in Flanders, the amount of their payment arrears is higher. It averages 9,500 euros.
The total amount of overdue repayments has increased in one year from 2.615 billion euros to 2.645 billion euros.
The profile of over-indebted people is very specific. Half of them are between 25 and 44 years old. Moreover, one in two lives in a household that earns no more than 1,250 euros per month.
The consequences of a payment default
Initially, the credit institution has the legal obligation to report the credit contract to the National Bank of Belgium. What does this mean? As soon as you have accumulated three unpaid monthly payments, the bank is required to notify you by registered letter and proceed with your registration with the National Bank of Belgium.
Direct consequence: you can no longer obtain credit in Belgium as long as you have not fully settled the amount of unpaid debts, including late interest and any penalties for reporting the credit contract. Then, the law requires you to wait another 15 months before you can borrow again in Belgium.
Furthermore, if the default concerns a mortgage, the consequences can be dramatic. The bank will, in addition to the registration, proceed with the foreclosure of the house and it can be sold at a public auction (exactly as happened in the United States or Spain following the recent real estate crises).
Sometimes, the borrower will have the unpleasant surprise of finding that despite the sale of the house, their debt remains very high because the default occurred in the early years, and the borrower has paid much more interest than principal…
Our prevention policy
At European Popular Credit, we have implemented a prevention policy to avoid payment defaults and we inform our clients about mortgage loans to best protect their interests.
Regarding personal loans, our brokers study and analyze the files of potential borrowers thoroughly. We respect a debt ratio that does not exceed 40% of income. We discuss with our clients the amounts requested, the desired durations, and the purpose of the funds. Sometimes it is better to receive a little less money, be more reasonable, but be sure to repay your loan. This is the essential advisory mission of our brokers.
In terms of mortgage loans, we practice absolute transparency. Some institutions sell borrowers very low interest rates. The downside is that the borrower repays much more interest than principal and in case of default in the first 10 to 15 years of the loan contract, it is a disaster.
We advise you to repay more principal than interest, even if it means paying a slightly higher monthly payment. The two advantages of this solution: we force you to become aware of your contributory capacity and you repay the principal much faster than the interest. In the end, the total cost of your loan is obviously lower, which is in your interest.
