Irresponsible lending happens when a lender gives someone credit without making sure they can actually afford to pay it back. In the UK, this is against the law and goes against industry standards set by organisations like the Financial Conduct Authority (FCA).
For motorists, irresponsible lending might happen if you take out a car loan or finance agreement that's too big for your budget. For example, imagine you get approved for a £10,000 personal loan to buy a new car, but your monthly income is only enough to cover basic expenses and repayments of around £500 per month at most. If the loan requires you to pay back £700 every month, this could be considered irresponsible lending because it puts too much financial pressure on you.
This matters for consumers because taking on debts you can't manage often leads to missed payments, which can harm your credit score and cause stress. In severe cases, it might even lead to repossession of the car if you default on the loan.
In the UK, lenders are supposed to follow rules set by the FCA that require them to assess whether a borrower can realistically afford their repayments before lending money. These rules help prevent people from getting into financial trouble and protect consumers from unscrupulous lenders.
To avoid falling victim to irresponsible lending, always carefully check your budget and repayment capacity before agreeing to any loan or finance deal. Make sure you understand the full cost of borrowing and that you can comfortably manage the monthly repayments without compromising on essential expenses like food, housing, and utilities.
How This Relates to the FCA Redress Scheme
The FCA motor finance redress scheme covers 12.1 million agreements with an average compensation of £829 per agreement. The total cost to firms is £9.1 billion. If you had PCP or HP finance between 6 April 2007 and 1 November 2024, you may be eligible. The final deadline to complain is 31 August 2027. You do not need a claims management company.