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The term ‘irresponsible lending‘ describes lending practices whereby credit providers, lenders or banks grants a loan to someone, or extends credit to borrowers, without sufficient assessments of their ability to repay being carried out. This practice can have severe consequences for both borrowers and the economy as a whole.
In this article, we will explore what constitute irresponsible lending, its impact, how consumers can protect themselves and how to claim back if you have been a victim of this practice.
What Is Irresponsible Lending?
Irresponsible lending, also called unaffordable lending, occurs when financing firms, such as banks or credit providers, grant their customers loans or credit products without conducting a thorough assessment of the borrower’s financial situation.
Failure to carry out adequate checks can result in offering loans to individuals with poor credit history, providing credit without sufficient income verification, or promoting high-interest loans to vulnerable individuals.
Key Characteristics of Irresponsible Lending
Inadequate creditworthiness checks – Financial providers are responsible for assessing an individual’s ability to repay before approving any loan. Irresponsible lenders may overlook this step or fail to perform the check to the required standard, and it is this behaviour that leads to situations where loans may be granted that realistically cannot be paid back or be paid back without the customer being forced into hardship.
High interest rates and hidden fees – Some lenders may offer credit with significantly higher interest rates and/or hidden fees that are not clearly disclosed. This can make repayments difficult and result in the borrower becoming trapped in a cycle of debt.
Inappropriate marketing tactics – Irresponsible lenders may use inappropriate marketing tactics to target vulnerable consumers, such as those with a poor credit rating or who are struggling to get by on a low income. This can include anything from cold calling to pushing loans without fully disclosing the terms of conditions, leading to confusion and financial hardship.
Consequences of Irresponsible Lending
Financial hardship – Those who have fallen victim to irresponsible lending can often find themselves in financial distress, unable to meet their repayment obligations. This can lead to a downward spiral of debt, forcing them to take on more loans to cover existing debt. Ultimately, this can have a detrimental effect on the individual’s mental wellbeing and essential living situations.
Damage to credit score – Failing to repay loans on time due to unsustainable lending terms can severely damage a customer’s credit score, which can – and almost certainly will – affect their future borrowing ability, housing prospects and even employment opportunities.
Legal and regulatory risks for lenders – Lenders engaged in irresponsible lending practices may face legal action, fines and penalties from regulatory bodies. In many jurisdictions, consumer protection laws are in place to safeguard consumers from such practices and non-compliant lenders may be held accountable.
Economic instability – On a broader scale, a culture of lending money to customers that they simply couldn’t repay can contribute to economic instability. Irresponsible lending had a significant part to play in the UK falling into recession during the global financial crisis of 2008, is a prime example of how these practices can lead to systemic risks.
How to Identify and Avoid Irresponsible Lenders
Research the lender – Before taking out a loan, do a bit of digging into the lender’s reputation. Look for reviews, ratings, and any complaints logged against them. Regulatory bodies often provide lists of licensed and reputable lenders.
Read the small print – Always read the loan agreement thoroughly. Ensure you understand the interest rate, repayment terms and any other fees associated with the loan. If anything is unclear, ask the lender for clarification.
Consider your financial situation – Only borrow what you can afford to repay. Assess your own income, expenses, and existing debt before taking on more credit. Avoid high-interest loans or credit products with unfavourable terms.
Seek professional advice – If you’re unsure about a loan offer, seek advice from a financial advisor or a consumer protection agency. They can help you understand the terms and give you effective guidance on whether taking out the loan is in your best interest.
Are you a victim of irresponsible lending?
If your loan repayments were unaffordable, or if meeting those payments meant you experienced severe hardship, you may be a victim of irresponsible lending and may be eligible to submit a claim.
Barings Law has a dedicated team of legal experts ready to take on your case and help you claim back the money you are rightfully owed.
What’s more, your irresponsible lending claim will be carried out on a no-win no-fee basis, meaning there is no financial risk to you for making your claim. If we do not win your case for you, you won’t pay us a penny for our services.
All you need to do is fill in the form by clicking the button below. Our team will then conduct a thorough assessment of your case and get in touch to let you know if you are eligible to claim compensation. They will then get to work on fighting your corner and getting back what you are owed.
At Barings Law, your legal concerns are our top priority. Whether you need guidance on a complex legal matter or have questions about our services, our team is ready to assist you.
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