By Patricia Uceda, Fall 2014 Graduate Research Assistant
While renters may not have to deal with mortgage debt, there are many different types of debt affecting them including credit card, medical, student loan, and auto debt. The FINRA Investor Education Foundation’s National Financial Capability Study found that renters are more likely to carry some of these forms of debts. Specifically, renters are 9% more likely to carry credit card debt, 9% more likely to carry student loan debt, and 17% more likely to carry medical debt. Auto debt is actually more common in homeowners, although 26% of renters also reported carrying auto debt.
This debt and financial pressure could be driving renters to make unwise financing choices, especially given that they are already financially fragile and highly at risk for income shock. Renters typically are more driven to non-bank forms of borrowing than homeowners, including pawn shops, auto title loans, tax refund advances, and payday lenders. These types of borrowing are very often predatory, with very high interest rates and a high rate of default.
Renters should try to avoid predatory lenders if at all possible. Additionally, make sure that any loans you take on are realistic for you and your financial situation. If you are considering taking out a loan, you can use FINRA’s loan calculator to figure out what your monthly payments would depending on the loan amount, interest rate, and term of loan.