Responsible Lending Policy

Who this applies to 

Any member of staff that assesses any part of an application for loan submitted to KHANDOKAR & CO.

Purpose

The purpose of the Responsible Lending Policy is to ensure that the company treats customers fairly by assessing whether the customer will be able to repay the sums borrowed and interest when entering into a loan contract.

It will also ensure that customers are not exploited by the company by providing finance where it is evident the customer is unable to repay through their own income and has not alternative means of repayment.

This policy applies to entering into both regulated and unregulated loan contracts.

Assessment of Affordability

The company will assess the customer’s ability to repay the sums due before entering into any loan contract.

When assessing if a customer is able to repay the sums due, the company:

  • will not base its assessment solely on the equity in the property or take into account an expected increase in property prices;
  • will take account the monthly income of the customer, net of income tax and national insurance; together with the customer’s committed expenditure and basic essential expenditure of the household;
  • will assess the ability to repay both capital and interest over the term;
  • will take into account the likely impact of future interest rate increases;
  • will obtain evidence of income, either through documented evidence or through automated systems, dependent upon the employment status of the customer

Expenditure

The company will take into account the following when assessing the customer’s expenditure:

  • committed expenditure, eg credit and other contractual commitments, for example, secured and unsecured loans and credit cards, hire purchase, child maintenance
  • basic essential expenditure for example, housekeeping, utilities, council tax, buildings insurance and essential travel
  • basic quality of living costs, for example, clothing, furniture, repairs, personal goods, basic recreation and childcare.

Future Changes to Income and Expenditure

The company will take into account where there may be, or likely to be, future changes to the income and expenditure of a customer during the term of the loan, for example, redundancy, loan commitment which will become due and retirement.

What will be taken into account in the Assessment of a Customer’s Ability to Pay:

  • how income and expenditure is assessed, ie types of income which are acceptable, proportion of income streams, how variations are dealt with, acceptable evidence of income, how committed expenditure, basic essential expenditure and quality of living costs are taken into account
  • the calculations used to determine if the loan is affordable
  • how anti-fraud controls are incorporated into the assessment
  • how the firm calculates the size of advance for each customer, including timings of reviews if applicable
  • actions to be taken if the calculation at (e) does not perform as expected
  • how regular audits of responsible lending policy are carried out
  • how record keeping requirements are met

Monitoring

The Company will provide management information to the firm’s board which will include, for example:

  • details of active loans in existence
  • key performance indicators
  • complaints and root cause analysis
  • details of customers in arrears and a review of the reasons behind this

Record Keeping

The firm will make a record, either in paper or electronic form, of the steps taken above, as follows:

  • information in each affordability assessment and how the lending decision has been made including:
    • breakdown of income
    • expenditure, including basic essential and quality of living costs
    • evidence of income/expenditure
    • assumptions used to test affordability
    • repayment type and term
    • calculation used to determine if the loan is affordable

(For Interest Roll Up Loans)

  • the reasons for the decision to offer this loan
  • evidence of repayment strategy
  • outcome of each review and date carried out

The company will ensure that where customers who enter into an Interest Roll up Loan the company will have evidence of a clear and credible repayment strategy for both capital and interest, for example, the sale of the property which is the subject of the agreement.   The company will review the customer repayment strategy at least once during the agreement.

Appendix 1

What our Customer can expect from us:

  • a product which meets their needs, showing the risks as well as the benefits
  • clear information on the cost of borrowing and any fees or charges that apply and timeframe for a decision
  • a robust assessment of their ability to repay the loan based on current circumstances and allowing for any known or foreseeable changes
  • reasonable notice of interest rate changes
  • that their personal information is treated confidentially and in accordance with Data Protection legislation
  • prompt and efficient handling of any queries or complaints
  • considerate treatment in the event of any financial difficulties or arrears

What we expect from our Customers:

  • To provide accurate and complete information on their application, particularly with reference to anything which may impact on our affordability assessment
  • To conduct regular assessments of their borrowing and commitments and to contact us as soon as possible if they are experiencing any financial difficulties
  • To read and understand the terms and conditions on which the money is borrowed
  • To ensure they are comfortable with the level of borrowing requested
  • To ensure they have the means to repay the loan