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i The advice on this page applies to anyone with personal debts taken out in the UK.

Irresponsible lending and affordability checks

Before a creditor, such as a loan company or mortgage lender, can lend you money they must take steps to ensure you can afford to pay it back. They do this by running an affordability check. If they lend you more than you can afford to repay, you can make a complaint against them for irresponsible lending.

account relationship iconIt’s important to understand your rights when dealing with creditors. If you’re worried about money and falling behind with repayments, contact us for free and confidential debt advice.

What is irresponsible lending?

If a creditor hasn’t done proper affordability checks, they may give you a loan that’s larger than you need, or that you can’t afford to pay back. This could leave you with a choice of cutting back on your essential living costs to keep up with the payments, or missing payments to the debt which could lead to your account defaulting.

Lending money without properly checking affordability is known as irresponsible lending.

To lend responsibly, a creditor must be confident that you can repay the debt:

  • In full and on time
  • Without having to borrow more money
  • Without falling behind on your existing commitments, and
  • Without causing you financial hardship

If this has happened to you and as a result you’ve struggled to repay a debt you could make a complaint to the creditor.

Some payday loan companies have been made to refund interest or write off debts which were lent irresponsibly without affordability checks.

If you make a complaint, there’s no guarantee that your creditor will agree to this, but you may be able to agree to other concessions, for example allowing you to pay the debt back at a reduced amount.

What is an affordability check?

When you apply to take out a loan or other credit agreement you’ll usually be asked some questions about your income and your regular household expenses. Responsible lenders can use this information, plus details about your other debts from your credit file, to assess whether the agreement is manageable.

Creditors should also take steps to check affordability if they’re extending or refinancing a credit agreement. This applies to all lenders regulated by the Consumer Credit Act.

If you take out a guarantor loan, the lender must check affordability for both the main (or ‘principal’) borrower and the guarantor.

How does an affordability check work?

Generally, the lender will look at your household budget:

  • How much you earn
  • How much you spend on bills and other regular payments, including any existing credit commitments you have

By working out how much you have left from your income, they can see how much you can afford to pay them on a regular basis.

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Refused a loan after an affordability check?

If you’ve tried to take out a loan or refinance existing debts but your lender has refused after doing an affordability check, you first need to decide whether you really need to borrow more. Could you manage without further borrowing?

Being refused credit can often be a sign that you need help with money, especially if you have other debts that you’re struggling to manage.

What happens if I give wrong information to a lender?

It’s important to give accurate information to your creditor if they’re checking affordability.

It might seem tempting to miss out expenses or exaggerate your income to get accepted for a loan or to increase the amount you can borrow, but this could make your situation a lot worse if you borrow more than you can realistically afford.

Some lenders will refuse an affordability complaint if they think you gave them inaccurate information when you applied. However, you might be able to argue that they should have done more careful checks, such as asking for bank statements or wage slips.

In addition, giving false information on application can cause problems with future credit applications. Some lenders use a fraud prevention service called National Hunter which can flag up discrepancies on previous application forms.

Worried about money?

Get in touch with us for free and confidential debt advice. Use our online advice tool or call us to speak to an expert advisor.

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