Ability To Pay Is The New Lending Reality

… And the banks are adapting

by Danielle Sesko

For many years, the lending industry has largely viewed missed payments through the lens of borrower behavior. Did a borrower mismanage cash flow? Did another obligation take priority? Was the borrower simply unwilling to pay?

That framework still has relevance, but it no longer fully captures the realities borrowers are navigating. As affordability pressures persist, missed payments are increasingly driven by a more fundamental constraint: income disruption. With household budgets already stretched thin, even modest disruptions can have an immediate impact on payment behavior.

Recent macroeconomic data underscores this shift. The Federal Reserve’s latest G.19 consumer credit report shows that consumer credit increased at a 5.8% annualized rate in March. Revolving credit, which includes credit cards, grew at a faster 9.1% annualized pace. At the same time, average credit card interest rates remain elevated at approximately 21% (or roughly 2,100 basis points)¹; further compressing borrower capacity and increasing sensitivity to income shocks.

With revolving credit growth accelerating and borrowing costs remaining high, this signals a broader trend in household cash flow management: credit is being used to smooth routine expenses and manage essential obligations, rather than support discretionary spending.

From TruStage’s perspective as a lending and payment protection partner, this macro environment aligns closely with our consumer research that speaks to the narrow financial margins for many borrowers: 96% of consumers report at least one payment-related concern, and 58% indicate that an unexpected expense would significantly disrupt their budget².

This pressure is particularly evident among younger consumers. Higher fixed expenses, more variable income, and limited financial buffers mean that a job interruption, medical expense, or unexpected bill can quickly translate into payment stress.

Across the industry, lenders are responding. Institutions are reexamining product design, strengthening customer education, and adopting payment protection solutions that are designed to help borrowers remain current during periods of income disruption rather than intervening only after delinquency occurs.

From Willingness To Pay To Ability To Pay

Understanding this environment requires a clearer distinction between willingness to pay and ability to pay. Willingness to pay demonstrates borrower intent and prioritization. Ability to pay reflects cash flow resilience, specifically how well a borrower can absorb income interruptions or expense shocks.

Historically, delinquency models have leaned heavily on intent. However, intent alone does not cover a payment when income falls short. TruStage consumer insights indicate that many typically responsible borrowers are one unexpected expense, job loss, or disability away from delinquency, reinforcing that much of today’s risk is structural rather than behavioral².

The Federal Reserve data shared earlier spells this out. Rising revolving credit balances alongside persistently high interest rates dictate borrowing driven by necessity rather than preference. In this context, missed payments are less a reflection of discipline and more a sign of limited financial flexibility.

For lenders, this reality changes the risk conversation. If missed payments are situational, effective responses must occur earlier in the lifecycle. This moves emphasis away from reactive collections strategies and toward solutions that support payment continuity.

What Lenders Are Seeing On The Ground

Ability to pay pressure rarely manifests in a single area. When financial resilience weakens, borrowers begin drawing on multiple tools simultaneously.

TruStage’s real time indicators point to this broader strain. Past due bill notices are increasing across products, policy loans and surrenders are rising compared with the prior year, and retention calls are up more than 20% year over year, indicating heightened financial stress and increased demand for flexibility².

At the same time, our research shows borrowers relying more heavily on revolving credit to manage everyday expenses. This behavior aligns with the Federal Reserve data and reinforces the conclusion that credit is progressively serving as a liquidity management tool rather than a discretionary one.

Taken together, the numbers signal a clear conclusion. Affordability pressure is widespread, and lenders require tools and strategies that meet reality.

Designing For Fragile Budgets

Many traditional lending products were built around a predictable repayment path, characterized by steady income, stable expenses, and linear repayment. Today, lenders are designing for volatility, recognizing that borrower circumstances can change during the life of a loan even when intent does not.

This reflects a broader recognition that income disruption is not an exception. It is a common risk event. Designing for today’s economic climate means accounting for that reality and building solutions that help borrowers navigate disruption without immediately falling behind.

Improving Customer Education Earlier In The Lifecycle

Product design alone is not sufficient. Education is equally important and often the most immediate lever lenders can pull.

TruStage’s Consumer Lending Preferences Study highlights a persistent gap. More than 80% of consumers say they would likely enroll in payment protection if offered, yet more than half do not recall being offered it during a recent loan experience².

This gap has meaningful implications. When borrowers are unaware of available options or only learn about them after a disruption occurs, opportunities to prevent delinquency are lost. As a result, many lenders are prioritizing earlier and clearer education around payment obligations and available support.

Borrower questions tend to be highly practical. Cost and coverage consistently rank among the most important considerations. Providing clear, upfront education enables borrowers to evaluate options before financial stress limits their ability to make informed decisions.

Solutions designed for income disruption moments can help borrowers stay current while reducing avoidable losses and supporting long-term relationships.

Why Payment Protection Is Emerging As A Practical Intervention

Payment protection addresses a straightforward challenge. Borrowers do not plan for income interruptions, but both borrowers and lenders benefit when otherwise capable consumers can remain current through temporary hardship. TruStage research shows that 91% of borrowers worry that an unexpected event could affect their ability to make loan payments².

Interest spans a broad range of consumers: 73% report feeling more positive about lenders that offer payment protection, while only 1% report a negative perception. If offered, 80% say they would be likely to enroll, including consumers across income and credit tier².

What borrowers want is consistent. Peace of mind. Protection for family obligations. Financial stability during uncertainty. For most, payment protection functions as a resilience mechanism rather than a last resort.

Traditional models are also evolving. Coverage tied exclusively to a single loan can create gaps as borrowers refinance or move between products. This has driven the evolution of opt-in, customer purchased approaches that allow coverage to move with the borrower and provide continuity across life events.

What Good Looks Like For Lenders Going Forward

At present, as many households operate with limited margin for error and borrowing increasingly indicates necessity rather than confidence, the lending challenge extends beyond underwriting. It is a question of resilience.

Lenders best positioned for this environment will recognize that delinquency prevention is becoming a design challenge rather than solely a servicing function, which requires combining products built for income volatility, earlier and clearer customer education, and modern opt in, customer owned payment protection strategies.

Missed payments will not disappear entirely. However, as affordability pressures persist, lenders that adapt to ability to pay risk will be better positioned to support borrowers, reduce avoidable losses, and build durable trust over time.

¹ Board of Governors of the Federal Reserve System. (2026, May 7). Consumer credit – G.19 (p. 19). ²TruStage, Consumer Lending Preferences Study, November 2025.

The views expressed here are those of the author(s) and do not necessarily represent the views of TruStage.

TruStage^® is the marketing name for TruStage Financial Group, Inc. its subsidiaries and affiliates. Corporate headquarters are located in Madison, Wis. © TruStage