Little Loans and responsible lending
Little Loans is a credit broker. We work with a panel of UK-based lenders, all of whom are authorised and regulated by the Financial Conduct Authority (FCA). The lenders on our panel are committed to responsible lending.
Personal loans: What is responsible lending?
Lenders authorised and regulated by the FCA must practise responsible lending.
Thorough checks must be carried out to ensure that the applicant can afford to repay the loan without difficulty.
There are several things lenders must do to ensure they’re lending responsibly. We’ve included a few examples of responsible lending below.
Income verification
Understanding how much money you have coming in (income) and going out each month (outgoings or expenses) is an important step in responsible lending.
Lenders must be confident that you can afford to make your monthly repayments, as well as being able to comfortably cover the cost of your essential outgoings, such as housing, bills, and food.
Creditworthiness assessment
A lender will carry out a creditworthiness assessment of anyone applying for a loan. A creditworthiness assessment is an insight into your credit history and includes a hard credit search and/or an Open Banking check. This gives lenders an idea of how likely you are to repay the money.
You might feel worried about undergoing a creditworthiness assessment, especially if you’ve struggled with credit commitments in the past. However, it’s important to remember that a creditworthiness assessment is carried out to protect you. Taking out a loan should not put you in a difficult financial situation where you’re struggling to make repayments.
Transparency on the cost of the loan
If you’re approved for a loan, the lender must make you aware of the costs, including any applicable standard fees, the rate of interest, and the overall cost of borrowing, as well as how much money you’ll need to repay each month.
"Cooling off" period
In line with the Consumer Credit Act 1974, you are entitled to a 14-day ‘cooling off’ period, starting from the date you sign your credit agreement. During this time, you can cancel your loan. If the loan has been paid into your account, you will need to repay this money, plus interest.
Support for customers facing financial difficulty during their loan term
Lenders must provide support to customers who fall into difficulty when repaying their loan. This could include offering temporarily reduced repayments, a repayment holiday, or signposting to relevant charities and organisations.
Responsible lending for you
There are things you can do to make sure you’re borrowing responsibly.
A loan is a serious financial commitment, and you should think very carefully before you decide whether to search for one. Are there any alternatives that you could consider, such as borrowing from friends or family or saving up the money instead?
When deciding whether a loan could be a suitable option for you, you should work out your monthly budget. Make a note of how much money you have coming in during the average month, and how much you spend on your necessary outgoings. This will give you an idea of whether you could afford to make monthly loan repayments.
If you do choose to apply for a loan, you should never apply to borrow more money than you need or can afford to repay.
Know your credit score and understand how it could affect the choice of loans available to you. You could still be eligible for a loan, even if you have bad credit. However, you might be offered a higher rate of interest, which will make the loan more expensive.
Compare different repayment terms to find the one which best suits your financial situation. A loan with a shorter repayment term will cost less overall, but your monthly repayments will be higher. A loan with a longer term will cost more, but your monthly repayments will be lower.
Make sure the credit broker or lender you use is authorised and regulated by the FCA. We’ll talk about how you can do this in the section below.
If you run into difficulty when repaying your loan, you should reach out to your lender. Don’t ignore the problem in the hope that it will go away; the sooner your lender is aware of the situation, the sooner they can help.
How can I make sure a lender is authorised and regulated by the FCA?
Authorised and regulated credit brokers and lenders will appear on the FCA register. You can use the FCA Firm Checker tool to search for a company.
What to do if you can’t afford to make your loan repayments
A late or missed repayment can harm your credit score. If you’re finding it difficult to make your loan repayments, please speak to your lender as soon as you can. They will help you understand the options that could be available to you; depending on the lender, this could include temporarily reduced repayments or a repayment holiday.
Free, confidential financial advice is available through the following charities and organisations: StepChange, MoneyHelper, Citizens Advice and National Debtline.
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