Payment Arrears: When the System Ignores the User’s Reality

In the world of consumer credit, the term payment arrears is often associated with irresponsibility, poor financial management, or lack of commitment. However, this traditional perspective overlooks a critical factor affecting thousands of people in Mexico: the loss, damage, or malfunction of goods acquired through credit. And these are not luxury items, they are essential tools for work, education, or mobility. From a smartphone that connects someone to their job, to a motorcycle that enables transportation, or household appliances that facilitate daily life, these goods are vital for maintaining productivity and income.

According to Equality Company, up to 20% of payment arrears in consumer credit originate from incidents such as theft, accidental damage, or breakdowns of financed goods. This means that 1 in 5 borrowers who fall behind on payments is not acting negligently, but rather because the tool supporting their ability to pay is no longer available. This detail is often overlooked in traditional financial discourse but has significant consequences for both consumers and financial institutions.

Consider a concrete example: Someone purchases a smartphone on credit because it is essential for work as a delivery driver or freelancer. If the device is lost or stolen, the person not only loses a key work tool, but must continue paying for a device they can no longer use. Often, this forces them to incur additional debt to replace it. The question is obvious: How can anyone in this situation reasonably be expected to maintain their repayment capacity?

This phenomenon not only affects the consumer, it also represents a significant risk for financial institutions. Non-performing loans increase, ultimately impacting portfolio profitability and stability. Yet, the financial system rarely acknowledges this reality. Only 1 in 10 users in Mexico has insurance covering their mobile device, leaving the vast majority exposed to replacement costs, which can amount to 20% of the average monthly salary.

Another important aspect is that arrears due to such incidents create indirect impacts: the consumer’s financial reputation is affected, limiting access to future credit or financial products. This perpetuates cycles of financial exclusion and economic stress, particularly among vulnerable populations.

The solution, as proposed by Equality Company, lies in anticipation and designing protection mechanisms from the moment credit is granted. Just as a car or home is insured, financed devices, motorcycles, or appliances should be protected against theft, damage, or loss. Equality’s Protexion model integrates insurance and backup mechanisms directly into the credit, ensuring that consumers can maintain their repayment capacity even if the financed asset is lost.

This approach not only protects consumers, it also reduces financial institutions’ exposure to involuntary default risk. By anticipating events that may affect repayment capacity, financial inclusion is strengthened, and a fairer relationship between users and credit entities is promoted.

Financial inclusion should not be limited to providing access to credit. It must also recognize that life is uncertain and that users may face unforeseen circumstances. Protecting them against such eventualities is not a luxury, it is a measure of financial justice. Because not all borrowers in arrears are irresponsible. Many simply lost the tool that enabled them to keep paying.

Furthermore, incorporating these measures has a positive economic impact: it reduces overall arrears, strengthens consumer confidence, and contributes to financial system stability. In a country with high levels of informal employment and variable incomes, mechanisms like Protexion represent a step toward a more fair, inclusive, and resilient credit system.

The conversation around arrears needs to shift: stop blaming the user and start recognizing the real vulnerability of relying on financed goods. Only then can we build a financial system that is truly inclusive, where economic growth opportunities are accompanied by protection and support.