Responsibilities of Lenders
Lenders need to keep to financial regulations, in order to provide quality loan products and services. They should also strive for exceptional customer service.
Borrowers need support from lenders during the terms of their loans, to make sure the loan purpose, terms and repayment dates are met. Lenders, therefore, have to:
- Credit check potential borrowers.
- Ensure borrowers can afford monthly, long or short term loan repayments.
- Provide compliant loan terms and conditions.
- Give customers clear and simple loan information, including APR.
- Allow potential borrowers enough time to decide on loan agreement terms.
- Keep appropriate financial records.
- Deliver quality borrower support and customer service.
Bad Credit Loans
When applications are made for new loans, lenders are expected to work with credit referencing agencies to check a potential borrower’s credit history, score, and record. This is to see how likely it is that the borrower can repay a loan. Borrowers with bad credit and low incomes may be turned down for loans. If so, they should receive guidance on how to improve their credit score.
Some borrowers with poor credit ratings, who can afford loan repayments but may otherwise be turned down for credit, may choose to take out a secured loan with a guarantor. The guarantor stands as security for their loan repayments.
Lenders are required by law to keep to the Lending Code, giving customers clear information about long or short term lending so that they have enough time to consider the loan terms, conditions and APR, before making a final decision. Keeping appropriate records of all client accounts, loans and financial transactions is also a legal requirement.
Once a loan is agreed, lenders have a responsibility to support borrowers throughout their loan. Lenders follow codes of practice, particularly supporting borrowers with a history of mental health issues and debt problems.
Responsibilities of Borrowers
Similarly, borrowers have responsibilities when applying for and repaying loans, and these include:
- Providing honest information in the loan application.
- Striving to improve credit worthiness by meeting bill payments and loan repayments.
- Seeking further clarity from a lender where terms, conditions and APR may not be understood.
- Taking the time to consider the loan agreement contract and affordability of repayments.
- Contacting a lender in timely fashion if changes in circumstances impact ability to meet loan repayments.
Short term loans with high APR and interest rates are an option for people seeking emergency cash to cover monthly expenses, before their payday. But there are more affordable options than costly emergency loans – a borrower should look into other options if they can.
Where credit worthiness is an issue, borrowers may wish to improve their financial circumstances by asking family or friends for help, or applying for a guaranteed loan instead.
You can also seek third party help and advice if you’re looking to borrow responsibly. Companies such as the Citizens Advice Bureau can offer help if you’re not sure which option is the best for you.
When you’re looking for a responsible lender, there are certain things you can check for. We’ve created a list of the top things a responsible lender should have:
- Legal right or license to lend money
- Licenced and regulated by a financial regulator, such as the Financial Conduct Authority (FCA) in the UK
- Keep to regulations, such as the Consumer Credit Directive (CCD)
- Provide information on the Financial Ombudsman Service (FOS), if you wish to make a complaint
- Have clear marketing practices
- Have a good reputation
- Be easily contacted, and not slow to respond
- Pre-contractual information provided
- Loan approval or declining criteria
- Should give you a 14-day loan cooling-off period
- Provide the terms of early loan repayment
The Role of the FCA
The Financial Conduct Authority (FCA) have imposed several regulations on lenders, in response to mounting debt and ever-increasing revenue. The FCA has cracked down on irresponsible practices by enforcing lenders to assess borrowers’ repayment ability, requiring documentation to prove the client can repay the lender.
They’ve also capped interest at 0.8% for each day someone borrows money. If they don’t repay on time, late fees can’t be more than £15. In the past people could get hit with £20 charges or more.
Most beneficial to the millions of borrowers of payday loans is that the total cost for taking out a loan will never exceed 100% of the original loan. This means that you’d never have to repay more than twice the original amount.Apply Now!