Responsible lending: basic principles
The financial and analytical service FoxyCredit does not issue loans. We provide potential borrowers with reliable information about financial institutions and their products. We cannot influence whether the financial institution will provide a loan on the agreed terms, and whether the client will make payments responsibly. It depends solely on the parties, who conclude the loan agreement. But we would like to remind you that successful processing and repayment of a loan is possible only if you follow the principles of responsible borrowing and lending.
Principles of responsible borrowing
In the modern lending market, such a negative trend as irresponsible borrowing is observed. Thus, many borrowers are falling into debt, which is very difficult to get rid of. A responsible approach to loan processing and certain principles will help to avoid the most negative consequences.
Calculate your debt burden
Before applying for a loan, a borrower must soberly assess his or her financial situation - whether he or she will be able to pay a principal amount of a loan and an interest. In this case, a debt burden indicator has to be calculated.
A debt burden indicator is calculated by subtracting the mandatory monthly expenses from the monthly income. Then, from the remaining amount, the estimated amount of loan payments is subtracted. Thus, the borrower will be able to understand whether he or she is capable of such a financial burden.
Rely on real income
Some borrowers apply for a loan expecting that their income will increase in the future. For example, there is a possibility that they will receive a promotion at work or a salary increase. However, there is always a risk that the expectations will not meet reality. Therefore, when calculating a debt burden indicator, you should always rely only on real income.
Take care of insurance
Unforeseen circumstances can happen to everyone. For example, the loss of a job can cause a situation when a borrower is simply unable to repay the debt. It will lead to penalties from the lender's side and that will aggravate the situation.
Thus, it is so important to take care of additional insurance. Some clients enlist the support of the loved ones, others apply directly to insurance companies that offer a special product - insurance against loan default. If the client cannot pay the loan for any reason, the policy will cover his or her expenses.
Check out all additional commissions and fees
Some lenders may charge clients a service fee, insurance fee, and other payments that add to the cost of the loan. To find out the real cost of the loan, you should carefully look through the loan agreement.
Compare different offers
We would not recommend applying for a loan in the first organization. It's important to study offers from different lenders and compare them. So you will be able to find the most profitable option.
Provide a lender with complete and accurate information
Credit institutions are very careful in checking potential borrowers. Therefore, it is not recommended to provide them with false information about yourself in order to increase the chances of obtaining a loan. Cheating and fraudulent activities can lead to blacklisting the client.
Make the loan payments on time
The loan agreement specifies the loan repayment schedule. You should comply with it to avoid the penalties. If you are unable to make the loan payment on time, you can prolong the loan agreement.
Principles of responsible lending
Lending institutions should be careful when checking out potential borrowers. The check should include:
- credit history check;
- collecting data on financial position;
- analysis of the client's solvency.
It's important to realize that lending without collateral entails additional risks.
Another principle of responsible lending is the provision of complete and reliable information about the loan product. The borrower must know what loan amount he or she can obtain, at what interest rate, for what period. It would be helpful for the borrower to have an opportunity to calculate the cost of a loan directly on the lender's website to understand whether it is suitable or not. There should be no hidden fees or charges that will ultimately increase the cost of the loan.
Lenders should inform about all the consequences of a delay in loan payments and, if possible, present the possibility of prolonging the loan agreement or restructuring the debt. When dealing with debtors, they should use only lawful methods of debt collection.
We encourage all lenders and consumers of their services to follow the principles of responsible lending and borrowing described above. Thanks to this, it will be possible to create the most favorable environment in the microcredit market.