Lenders need to be more cautious
Over recent months we have all heard about the various effects of the global credit crunch, which has created havoc in the UK’s money markets and has resulted in many changes. One of the major changes that most of us have heard about is the tighter credit conditions that have resulted from the credit squeeze. According to reports lenders have really tightened up on their lending criteria, are being far more careful with regards to how much new business they take on, and are being far more cautious about who they will lend to.
However, a couple of recent reports have suggested that not all lenders are being quite as cautious as they should be in the current financial climate, and some are even handing out loans to borrowers without bothering to check on basic details such as proof of income. In fact, worrying, a number of applicants were not even asked to provide income details on their application forms. This raises the question as to whether the lenders that are operating in this way have any concerns about the rising levels of bad debt that are building in the UK.
One industry official expressed his concern over this matter, stating: ‘We see far too much evidence of people having been lent money where it was clear from the start that they would not be in a position to repay it. We have repeatedly called on lenders to carry out thorough checks and it is imperative that this is done.’
Another official added: ‘With more than 7,716 loan repayments being missed every day and record write-offs, you might think that lenders had learnt their lesson.’
A recent study showed that in the last twelve months only 30% of applicants looking for a loan had been asked to provide proof of income. Officials from the banking industry have claimed that the reason why many people are not asked about their income levels is because they apply through their own banks for a loan, and therefore the lender already has all of their income details, as they are already a customer. However, research showed that 45% of consumers that were looking for a loan had applied to other lenders rather than their own banks, so there are still many people that should be made to provide proof of income but are not.
Officials are concerned that this lax approach to carrying out necessary checks on potential borrowers is going to hurt both the finance industries and consumers. Many consumers may find themselves lumbered with a loan that they cannot afford to repay on their income, which could lead to damaged credit, financial difficulties, and a variety of other harsh consequences. Lenders could see a sharp rise in the level of defaults and bad debt on their books if they continue to fail when it comes to making adequate checks.
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