Let me start by asking you a question

If you wanted to take out a payday or short term loan, would you…

A. Want your lender to complete loan affordability checks to decide whether you can afford it?

or

B. Would you prefer to just be given the loan because you asked for it, and the fact that you said you can afford should be enough for us?

If you answered A. then you are in luck, because ALL lenders are bound by the FCA and other regulatory bodies to check your income and outgoings to ensure that you can afford the repayments.

If you answered B. then unfortunately, you can’t, sorry. In today’s climate, this decision has been taken away from you to protect you and the responsible lender you applied with.

The FCA and other regulatory bodies rightly force loan companies like LoanPig to complete loan affordability checks, this is for your protection and ours.

So if you are looking to take out a short term or payday loan with LoanPig, then we will complete an affordability check.

Loan Affordability Checks… What are they?

Affordability checks are important for a variety of financial transactions and services to ensure responsible lending and your financial stability. They are typically used by lenders, financial institutions, and service providers to assess whether an individual can afford to take on a particular financial obligation.

How do we do loan affordability checks?

For us to do an affordability check, for the payday or short term loan you applied for, we need to understand how much you earn and how much you spend on a regular basis. One of the best ways to do this Open Banking, which gives us a quick snapshot of your affordability, (as long as you provide the details of the bank you have your wages paid into and daily expenditure coming out) and is the quickest way for us to complete our checks and issue your loan.

Open banking is easy to set up, as it will be a quick step in your application process and will make the loan process a lot quicker and easier

To find out more about Open Banking have a look at our quick guide to Open Banking when borrowing

Why are Loan Affordability checks needed?

Here are some reasons why affordability checks are required:

Help LoanPig make a decision quickly and securely

Risk Management: Affordability checks help lenders and financial institutions assess the level of risk associated with lending money or extending credit to an individual or business. By evaluating an applicant’s financial situation, lenders can determine the likelihood of repayment and make informed decisions to mitigate potential losses.

Protection for you

Consumer Protection: Affordability checks serve as a means of consumer protection. They prevent individuals from taking on financial commitments that they may not be able to manage, which can lead to financial hardship, defaults, and debt-related problems.

Because we need to do it

Regulatory Compliance: Many countries have regulations and laws in place that require lenders and financial institutions to conduct affordability assessments. These regulations aim to ensure fair lending practices and protect consumers from predatory lending.

More protection for you

Preventing Over-Indebtedness: Affordability checks help prevent individuals from accumulating excessive debt that they cannot reasonably manage. This is especially important for consumer loans, credit cards, and mortgages, as excessive debt can lead to financial distress and even bankruptcy.

Protection for everyone

Stability of Financial System: Responsible lending practices, including affordability checks, contribute to the overall stability of the financial system. When lenders make sound lending decisions based on borrowers’ ability to repay, it reduces the likelihood of financial crises and economic instability.

Looks after your financial wellbeing

Ensuring Sustainable Borrowing: Affordability checks encourage sustainable borrowing habits. They promote responsible financial behavior by encouraging individuals to only take on debt they can realistically afford to repay, which is essential for long-term financial well-being.

Better loan decisioning

Creditworthiness Determination: Affordability checks are one component of determining an applicant’s creditworthiness. Lenders use various factors, including credit history, income, expenses, and debt-to-income ratio, to assess an applicant’s financial health and creditworthiness.

Conclusion

Loan affordability checks are essential to promote responsible lending and borrowing, protect consumers from financial hardship, and maintain the stability of the financial system. They help lenders make informed decisions about extending credit and ensure that borrowers can realistically manage their financial commitments.

So, if you want/need a payday or short term loan your lender will complete affordability checks and will probably do part of this via Open Banking