We’ve all been in a position where, whatever our goal, a bit of help has been necessary to get us over the line. But taking out a personal loan can be an intimidating experience. Our advice? Arm yourself with a little background knowledge as it can make a big difference to your confidence. Familiarising yourself with the principles of responsible lending is a great way to begin – because although these principles apply primarily to lenders, it’s essential that you understand them, too.
Let’s take a quick look at what responsible lending entails. It is the practice and processes that lenders must have in place to ensure that the product they are offering suits the consumer’s needs and objectives, and that the consumer can afford to make repayments without suffering substantial hardship. To ascertain your affordability the Lender will have to make reasonable enquiries about your income and expenses and verify the information you have given them. Remember, this is a mutually beneficial transaction – in return for their financial support, you’re providing the lender with a return on their investment. So, what can you reasonably expect a responsible lender to deliver? We’ve provided a quick summary below:
• Clear, accurate information
You have a right to be provided with all the information necessary for you to make an informed decision. Do you understand exactly what you are signing up to? The terms of your contract should be expressed in simple, clear language. Question anything you are unsure about – and do it sooner rather than later. Clarity is essential for both parties: clearly defined expectations on both sides make a successful outcome much easier to achieve.
• Fair, reasonable terms
We’ve all heard horror stories about lending arrangements gone awry. However, you should be aware that the Credit Contracts and Consumer Finance Act (CCCFA) protects you from “oppression” that is - unfair, harsh or unreasonable requirements. This applies both to the terms of your contract and to the lender’s behaviour. In other words, don’t let yourself be pushed around – it’s unacceptable for you to feel intimidated.
• Flexibility around unforeseen events
Or in other words, wiggle room. Even the best-laid plans can be derailed by an injury or other unforeseen crisis. If things do come unstuck, don’t panic: you have the right to submit a hardship application, which enables you to request changes to a credit contract without incurring penalties. Remember a credit contract can only be varied on the grounds of hardship only if you have the ability to meet the obligations under the varied contract. Again, act sooner rather than later – don’t wait to submit an application in the hopes that you will muddle through. It’s more than likely you will manage, but at least you’ll be covered if you don’t recover from a mishap as quickly as you’d anticipated.
• With rights come responsibilities
On your part, taking out a loan is only the first step in the process. You must take responsibility to comply with your side of the agreement with the Lender. So make sure that you have sufficient funds in your account to meet your scheduled repayments on time. Setting up a direct debit is the best way to ensure you do not overlook a payment. Maintaining a good repayment record will improve your credit worthiness, and this will hold you in good stead the next time you need a loan.
Feeling more confident? That’s great – the more knowledgeable you are about your rights and obligations, the more successful the transaction is likely to be. In fact, we recommend visiting the Ministry of Business, Innovation and Employment’s website for a little more detailed information on the CCCFA and the Responsible Lending Code. After all, as we noted at the beginning: the best way for you to stay in control is to stay informed.
To find out more information on borrowing from Harmoney, check out our Borrower FAQs today.