If you are thinking of taking out a loan, then you must have come across the term 'irresponsible lending' and if you are a first time loan applicant, you may be wondering what exactly that means. Basically, before a creditor lends you money, they must take steps to ensure that you can afford to pay back the loan you have taken out. This process is known as an affordability check and in the event that a creditor does not do a proper check, they may give you more than you need or an amount that you may be unable to pay back. This is what is called irresponsible lending.
To lend responsibly, a creditor needs to make sure that you can pay the debt in full and on time, without having to borrow more money, and without falling behind or defaulting on existing commitments. If any of the above has happened to you causing you to struggle to pay off a debt, then you can actually make a complaint against the creditor for irresponsible lending.
Now that you understand irresponsible lending, you need to understand how an affordability check works.
When you first apply for a loan, the lender will need to know exactly how much you earn and how much your bills and other regular payments are. Once they have worked out how much is left of your income, they can be able to see how much you can afford to pay back to them on a regular basis. Sometimes a lender may decline to approve you for a loan after an affordability check and if this happens, the first thing you need to do is figure out if borrowing more is in your best interest. This is because more often than not, being refused credit might actually be a sign of needing help with financial management especially if you already have other debts that you are struggling with or debt management. Most people think that bankruptcy is the way to go when this happens but the truth is that bankruptcy should be the very last resort.
There are other options such as debt management, token payment plan, equity release among others. It should be noted that rushing to bankruptcy will directly impact your finances sometimes for the long haul. So make sure that is really the direction you want to take when it comes to it. It should also be noted that there are refund claims which can be made for irresponsible lending. Get My Refund is one good example in Australia which is a service which will help you with claims of irresponsible lending, mis sold insurance and other types of claims.
In case you are already having financial struggles, you may feel the need to stretch the truth with your lender during your affordability check. This is definitely a wrong move because if you give the wrong information to a lender, you may hurt your chances of future credit applications since there are lenders who use a fraud preventing service which can flag discrepancies on your previous applications.
Apart from this, some lenders will refuse an affordability complaint if they suspect that you were anything less than honest when you applied. It should however be noted that you could argue that they were not very thorough with their checks if they did not ask for wage slips and bank statements.
Finally, giving wrong information to a lender may cause you to end up with more money than you need which could be worse for you in its eventuality as you will not be able to sustain the payments.(Read more...)