What is responsible lending?

When asking yourself if you can trust an online lender, looking at their approach to responsible lending is a good place to start. In this guide, we’ll help you understand what responsible lending is and how to spot an irresponsible lender – so you can choose the right provider when looking to borrow.

In this guide:

• What is responsible lending?
• Moneyboat’s approach to responsible lending
• Choosing a responsible lender
• Finding support for financial difficulty

What is responsible lending?

Responsible lending means that lenders need to be completely clear about the full cost of any loan (including fees, costs, and additional charges), as well as ensuring that a customer is able to repay the loan before approving their application. It’s a welcome requirement from the Financial Conduct Authority (FCA), putting the welfare of the customer first. If a lender deems that a customer is unable to repay the amount requested, a lower loan amount may be offered – and it’s then up to the customer if they choose it or not.

It doesn’t end here, though. A responsible lender should also provide support and a high-level of customer service to borrowers who are struggling to repay loans due to financial problems. Even when extensive creditworthiness checks have been performed, life can still throw a curve ball for customers. When it does, lenders need to be there for them.

Moneyboat’s approach to responsible lending

At Moneyboat, we take responsible lending seriously:

• As a direct lender, we have full control over the entire lending process
• We consider each application individually to determine affordability and eligibility
• Our loans are transparent and flexible, and costs are shown up front – no hidden fees or early repayment charges
• You can contact us by phone or email, Monday to Friday, 8am to 7pm (excl. Bank Holidays)
• Our UK-based support team are trained to help you through any eventuality

This is all backed up by our FCA registration, five-star Trustpilot reviews, and awards for responsible lending.

Responsible lending criteria

When offering payday loans, UK direct lenders should act responsibly in the following ways:

• Be open and honest on their websites to give potential customers all the information they need to make an informed decision
• Ensure that applicants understand all the details of the loan they are applying for before granting them funding
• Carry out thorough creditworthiness checks in accordance with the FCA handbook
• Carry out affordability checks and do all they can to ensure they get a realistic picture of the applicant’s income and outgoings
• Offer loan amounts and terms that are affordable and agreeable for the borrower

What is financial vulnerability?

Financial vulnerability refers to those who may have an elevated chance of getting into financial difficulties. This can be due to a wide variety of different factors, such as:

• A lack of financial knowledge or understanding
• Unstable or low household income
• Digital exclusion

Knowingly lending money to someone who is financially vulnerable is a form of irresponsible lending.

Explaining affordability checks

Responsible lenders have a duty to carry out thorough credit and affordability checks. They should review the requested loan amount against the income and expenses of a potential borrower.

Affordability checks take into account:

• Income
• Regular bills and expenses
• Spending habits
• Disposable income

Performing these checks is an important part of deciding whether a customer can realistically afford to make their repayments.

Choosing a responsible lender

When searching for payday loans or any other type of borrowing, look for lenders that:

• Have well-maintained websites, with clear and accessible terms and conditions
• Offer information on their eligibility criteria
• Carry out credit checks and affordability checks before offering loans
• Are registered with and authorised by the FCA
• Clearly state that they are responsible lenders

Also look for signals from previous customers and third parties which highlight trust. For example, Trustpilot reviews and awards for responsible lending are all indicators of a trustworthy lender.

Be wary of lenders who offer acceptance without checks

When you feel locked out from being able to get credit it can be tempting to turn to a provider who will overlook everything just to give you a loan. This is another form of irresponsible lending and should be avoided if possible.

A lender who doesn’t carry out checks means they’re not taking your financial situation and wellbeing into account – potentially giving you an unaffordable loan which could build into a greater form of debt.

You might feel a lender who carries out minimal checks is your only option when looking for a loan with bad credit. At Moneyboat, we welcome applications from people despite their credit score, but also carry out extensive affordability checks to ensure you can afford to repay the loan. This is responsible lending in a nutshell and we’re proud to support people in this way.

What happens if you can’t repay your loan on time?

Irresponsible lenders may also fail to follow proper lending regulations towards customers who are unable to repay on time. These lenders have been known to threaten borrowers with court action instead of supporting them and referring them to free debt advice.

If you take out a payday loan with a responsible lender and you’re worried about not being able to repay it, you should talk to your lender right away. Responsible lenders have a duty to treat borrowers fairly if they’re experiencing difficulties. See our full guide for more information on what to do if you’re struggling to repay your payday loan.

Three checks to ensure they’re a responsible lender

Now that you know what a responsible lender is, make sure to look for the signs that you can trust who you’re borrowing from. Here’s three main checks to remember:

1. Make sure they’re FCA registered and regulated
2. Ensure they carry out a proper affordability assessment
3. See what previous customers say about their service

You can also talk to free and independent finance support organisations if you’re struggling to decide if a lender is responsible. They include Citizens Advice, StepChange, and MoneyHelper, who are all well placed to help you navigate through any financial questions you might have.