Responsible lending of long and short term loans is important for both lenders and borrowers for varying reasons, and both have different responsibilities.
Responsibilities of lenders
Lender responsibilities extend from adhering to financial regulations to providing quality loan products and services with exceptional customer service to credit-worthy borrowers.
Borrowers require support from lenders during the terms of their loans to ensure the loan purpose, terms and repayment dates are met. Lenders, therefore, are required 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 transparent 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.
When applications are made for new loans, lenders are expected to engage the services of credit referencing agencies to check a potential borrower’s credit history, score, and record as an indicator of their ability to repay a loan. Borrowers with weak credit worth and income may be turned down for loans, and provided guidance by the credit reference agency 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 opt for a secured loan with a guarantor who stands as security for their loan repayments.
Lenders are required by law to adhere to the Lending Code, giving customers clear information about long or short term lending so that they have adequate time to consider the loan terms, conditions and APR, before making a final decision to proceed with the loan. Keeping appropriate records of all client accounts, loans and financial transactions is a legal compliance requirement.
Once a loan is agreed, lenders have a responsibility to support borrowers during the duration of their loan. Lenders follow codes of practice in this regard, particularly supporting borrowers with a history of mental illness and debt.
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.
Although short term loans with high APR and interest rates are an option for individuals seeking emergency monies to cover monthly expenses before receipt of wages or salary, opting for affordable alternatives instead of allowing costly emergency loans to roll over and further impact credit worthiness is a responsible choice.
Where credit worthiness is an issue, borrowers may wish to improve their financial circumstances through engaging family or friends in financial help, or opting for a guaranteed loan instead. Seeking professional advice about responsible borrowing and debt clearance helps borrowers to develop healthy credit history and financial status.