A lender saying yes doesn’t mean a loan is affordable. Knowing what lenders must check helps you judge for yourself.
Need to know
- FCA rules require lenders to check that you can repay without undue difficulty.
- Checks look at your income, essential spending and existing credit commitments.
- Repeated borrowing, or borrowing to repay other loans, is a sign a loan may not be affordable.
- If a lender failed to check properly, you may be able to complain.
Before lending, a payday lender must assess whether you can afford the loan. That’s a rule, not a courtesy, and it’s there to protect you.
What lenders must consider
Under the Financial Conduct Authority’s rules, a lender must assess your creditworthiness, which includes whether you can repay:
- out of your income or savings
- without borrowing again to do it
- while keeping up with essential spending and other commitments
What a proper check looks at
| Area | Examples |
|---|---|
| Income | Wages, benefits, how regular they are |
| Essential spending | Rent or mortgage, energy, council tax, food, travel |
| Existing credit | Other loans, cards and their repayments |
| Credit history | Recent borrowing, missed payments, defaults |
| Borrowing pattern | How often you’ve taken short-term loans recently |
Warning signs
- taking a new loan to repay another one
- borrowing from several payday lenders at once
- regular borrowing over many months
- being left short for essentials after repayments
Important
If you’re relying on payday loans every month, the loans are likely to be unaffordable, however quickly they’re approved. Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk.
Doing your own check
- List your monthly income after tax.
- Subtract essential bills and existing debt repayments.
- Check the loan repayment fits in what’s left, with room for surprises.
Helpful step
If the repayment would leave you short before your next payday, look at alternatives instead. A loan that can’t be repaid on time usually costs more in the end.
If a loan was unaffordable
If a lender approved a loan it shouldn’t have, you can complain. Our guide to complaints and the Financial Ombudsman explains how. If you’re struggling now, see what to do if you can’t repay.
Your questions answered
Can a lender just take my word on income?
Lenders must take reasonable steps to check affordability, which usually means more than accepting a stated figure, especially for high-cost credit.
Does the lender check my credit file?
Usually, yes. Most lenders check with at least one credit reference agency as part of the assessment.
What does ‘without undue difficulty’ mean?
Being able to make repayments on time while still paying for essentials and other commitments, without having to borrow more.
This guide is general information, not financial advice. Late repayment can cause you serious money problems. For help, go to moneyhelper.org.uk. We don’t arrange loans or work with lenders. Before borrowing, check the lender is authorised on the FCA register, and consider free debt advice from MoneyHelper, StepChange, National Debtline or Citizens Advice.