5 Early Warning Signs a Loan Is Heading for Arrears

By identifying these red flags early, lenders can take proactive action, protect cash flow, and maintain healthier customer relationships.

Here are five key indicators that a loan may be heading toward arrears, and what lenders can do about them.

1. Changes in Payment Behaviour

One of the earliest and most common warning signs is a shift in repayment behaviour.

This may include:

Payments being made later than usual (but still within the grace period)
Partial payments instead of full instalments
Increased reliance on payment extensions

While a single late payment isn’t always a concern, patterns matter. Consistent delays often indicate financial strain and a higher risk of future arrears.

What lenders can do:
Track payment trends automatically and flag behavioural changes early, allowing collections teams to engage before the account deteriorates.

2. Increased Contact or Communication Avoidance

Borrower communication can be very telling.

Red flags include:

Borrowers frequently contacting support to ask about extensions or payment options
Sudden silence from previously responsive customers
Ignored calls, emails, or SMS reminders

Avoidance often signals stress or uncertainty about repayment ability.

What lenders can do:
Use automated reminders and omnichannel communication to maintain consistent, non-intrusive contact and identify disengaged borrowers quickly.

3. Employment or Income Instability

Changes in a borrower’s employment or income significantly increase arrears risk.

This could involve:

Job loss or reduced working hours
Frequent changes in employment
Inconsistent income deposits (for bank-verified borrowers)

Even temporary income disruptions can affect repayment reliability.

What lenders can do:
Incorporate ongoing affordability and income monitoring where possible and adjust engagement strategies based on risk levels.

4. Rising Debt Levels or Financial Pressure

Borrowers under financial pressure often show signs beyond your own loan book.

Indicators may include:

Increased credit usage elsewhere
Multiple loan applications across lenders
Higher overall debt obligations

When borrowers become overextended, your loan may not be their top priority

What lenders can do:
Use credit and affordability data to identify increased debt exposure and apply early intervention strategies to prevent escalation.

5. Missed or Delayed First Payment

The first repayment is one of the strongest predictors of future loan performance.

A delayed or missed first instalment often indicates:

Poor budgeting
Misunderstanding of repayment terms
Underlying affordability issues

Loans that start badly are far more likely to end in arrears.

What lenders can do:
Closely monitor first-payment behaviour and trigger immediate follow-ups when issues arise.

Why Early Detection Matters

Waiting until an account is already in arrears:

Increases collection costs
Reduces recovery rates
Damages customer relationships

Early identification allows lenders to:

Engage borrowers sooner
Offer structured solutions
Improve long-term loan performance

How ACPAS Helps Lenders Stay Ahead of Arrears

ACPAS’s Arrears Management Software is designed to help lenders identify risk early and act decisively. With automated monitoring, real-time alerts, and integrated data insights, lenders can move from reactive collections to proactive risk management — all within one platform.

Contact ACPAS today to find out more about our LMS and how we can help protect both your loan book and your customers.

5 Early Warning Signs a Loan Is Heading for Arrears