Over Indebted

What does over-indebted mean?

The term over-indebted usually applies to a person whose current credit repayments are close to or exceed their income. You could be turned down for a credit application if in the eyes of a prospective lender, taking on their additional financial commitment would cause you to be over-indebted.

In order to protect borrowers from becoming over-indebted, lenders are now required to practice ‘responsible lending’ as a result of stricter regulations coming into force. Responsible lending refers to the idea that a lender must take appropriate measures to ensure their customers do not obtain more credit than they are able to manage.

Over-indebtedness typically leaves people in a difficult financial position and options such as Debt Management Plans or Arrangements to Pay might be recommended to help ease the burden, though they both have potential drawbacks. It is always recommended to do your research about any solutions that claim to be able to reduce debt, as they can have consequences that will affect your Credit Rating and ability to take out credit for at least 6 years.

Becoming over-indebted carries with it the statistically higher risk of Defaulting on payments and as such, lenders may lose out if they offer credit to someone at risk of non-payment. Responsible lending can help prevent the customer from becoming over-indebted which will ensure that they do not suffer the adverse effects of missed payments or arrangements to pay.

If you have large credit limits then you may find it difficult to obtain further credit, even if you have not used this facility, as a lender must take into consideration what your expenditures would be if you were to suddenly max out your current limits.


Q: Can being over-indebted cause me to be declined?

A: Yes, if it means that the lender concludes you are unlikely to be able to make their own repayments on top of your current financial commitments.

Q: How do I reduce the risk of becoming over-indebted?

A: Closely managing your income against expenditures each month will help you to determine how much you can afford to borrow. Typically, if a lender offers to increase your credit limit you are able to advise them that you are happy with your current limit.

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