Factors which lenders should take into account when assessing a customer's ability to make repayments

Firms should gather sufficient information, carry out checks and base their underwriting decisions as they consider appropriate and proportionate to the individual circumstances of each customer in order to assess:

  • creditworthiness - the extent to which the customer is suitable to receive the credit, based on how they have repaid credit previously.
  • Affordability and sustainability– the ability for the customer to afford the repayments through the period of the agreement.

They may wish to take account of one or more of the following factors:

  • the type of credit;
  • the amount, frequency and duration of the credit;
  • the total cost of credit;
  • the financial position of the customer at the time of seeking the credit and the ability to make repayments, from income, as they fall due;
  • the customer’s credit history, including any indications that the customer is experiencing or has experienced financial difficulties;
  • the customer’s existing and future financial commitments (for example, student loans) and the potential for the commitments under the agreement to negatively affect the customer’s financial situation;
  • any future changes in circumstances which could be reasonably expected to have a significant adverse financial impact on the customer (for example, reduced income in retirement); and
  • the vulnerability of the customer, in particular, where the firm understands the customer has had  some form of mental capacity limitation.