Things You Must know About Responsible Lending

The laws for responsible lending mean that the borrowers should be protected from the loans that your financial institution knows that the borrower can’t afford to pay back. It is a concept in the financial industry which ensures that the lender only offers those instant loan amounts that suit the needs and circumstances of the borrowers. If the borrower finds them in an unsuitable loan contract, a responsible lender should not keep them locked in a forceful contract or should not advise the borrowers to increase the credit limits.

What Does Responsible Lending Look Like?

To make sure that you do not grant an instant loan that will cause a hardship to the borrower, it is important for you as a lender to access the following information of the borrowers:

• Income

• Assets

• Existing debts

• Living situations

• Employment situation

• Expense details

• Number of people financially dependent on the borrowers

• Any other details that must affect the ability to repay the loan amount

The lenders must also request the document proof from the borrowers that verify their income like payslips, tax assessments or business activity evidence. Thus, those long loan application forms are not a waste of time. The responsible lenders try to consider all the details of the financial situation of the borrowers to access the factors like:

• Assets that can be used as collateral.

• Reliability of the income source.

• Existing debts that may affect the ability to repay the loan amount.

• The disposable income.

As a responsible lender, it is extremely important for you to lend money to the borrowers according to their ability to repay back or according to their actual needs or at a personal loan interest rate that they can pay back to reduce the chance of indebtedness of the borrower.

The consumer lending-borrowing industry in India is growing at high speed, with banks and Non-Banking Financial Companies(NBFCs) offering easy finance options to the borrowers so that they can buy anything from a basic mobile phone to a luxurious car without any hassle within a few minutes. This is a sign of the growth and progression of financial institutions as well as the economy. The responsible lending process focuses on offering a transparent process to the borrower, ensuring affordability, transparency in terms and conditions, and supporting the borrower to repay the loan easily without any hassle.

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