Widespread indiscriminate borrowing and lending can have disastrous consequences even for people who are not directly involved in such practices, as proved by the recent US financial crisis. Many financial companies and institutions are now more motivated to incorporate responsible lending in the way they do business. This is basically two things: Being transparent with the customer with regards to the assessment process and working with the customer to provide the best possible lending option.
Take fast cash loans, for example. Many people are turning to this type of loan to tide them over financial difficulties because it is easier to get compared to other types of loans. There is only minimum paperwork involved, and if the application is online, the borrower only needs to fill out a form. Assessment takes minutes instead of hours or days, and the loan amount is deposited to the borrower's bank account within a day or three business days.
However, as a responsible lender, the lending company should provide as much information as it can to the customer. It should help him be an educated borrower by posting details such as payday loan requirements, options and terms in its website or through other media. The assessment process itself should be transparent to the customer, and there should be a way for him to give feedback to the lending company or ask questions.
The lender should work with the customer to provide the best possible loan terms. It should recommend options that would ensure that the loan is paid promptly and always the amount that the customer can afford to pay. This decision will be based on the information provided by the borrower, so that it is in his best interests to give accurate data to the lender in the application.
Some governments are considering expanding the credit reporting system in their respective countries to include more information that would help lenders come up with better assessments of a borrower's eligibility for loans. Some concerns have been brought up, such as worries over privacy and stricter loaning requirements. But with the proper implementation, the advantages outweigh the disadvantages.
Overall, responsible lending practices serve to protect not just the lender, but the borrowers as well. Companies will only be able to give money to those who can afford to pay. For borrowers, they are prevented from getting loans that will only put them deeper in debt. Lenders are obliged to help borrowers be more educated about their finances by keeping assessments transparent and going over the loan options in detail with them.
On the borrower's part, he or she should provide accurate and even extra information. For those with good credit standing, lenders will be able to decide more quickly that they are a better credit risk and will compete for their business. They will be more willing to offer discounts or special pricing for these fast loans. The extra information will also help reduce the risk of identity fraud since it gives lenders more data with which to check the applicant's identity.