Why are we in a culture of irresponsible lending?
In recent years, there’s been a stark rise in irresponsible lending in the UK finance industry, forcing regulators to examine the existing lending criteria adopted by banks and other finance companies.
This is mainly due to the fact that there has been significant evidence to suggest that lenders are not carrying out adequate checks when it comes to lending money responsibly.
As a result, more borrowers than ever before are being approved for loans that they simply cannot afford to pay back due to the fact that lenders have done very little to establish their financial situation.
From paper-thin credit checks through to inadequate means-testing, customers are being approved for debt that is landing them in deeper water financially or leaving them in a situation where they cannot repay the loan.
But what is irresponsible lending?
Whatever type of credit you are applying for, it’s crucial that checks are carried out to determine whether or not you will be able to pay back the money you are lending.
So whether it’s a loan or other type of credit agreement, the lender should take the necessary steps to assess whether the agreement is actually manageable. This involves checking your credit file, asking questions about your annual income, as well as your monthly outgoings.
Failure to carry out these checks is classed as irresponsible lending and can have huge financial implications on the borrower, forcing them to cut essential living costs or in some cases resulting in the default of their account.
Although banks have been known to lend irresponsibly, it is payday loan companies that have hit the headlines in recent years for lending money that borrowers cannot afford to pay back.
What is responsible lending?
Responsible lending is when the borrower acts in the best interests of the customer by ensuring that they can afford to pay back the money they borrow. But that’s not all… it’s important that lenders also adopt a transparent approach when it comes to explaining to their customers what they are signing up to and whether or not the loan or credit agreement is suitable for their circumstances.
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