Responsible lending
Responsible lending is the current catch cry in our industry at the moment. With Royal Commissions and all financiers looking to meet their obligations regarding responsible lending.
At the heart of that responsibility is to ensure customers can afford their loans and to have a realistic look at clients living expenses.
As part of that process and to meet our obligations as brokers we must make reasonable enquiries into a client’s financial situation to assess whether a product or loan amount is suitable for their individual circumstances.
An important part of this is discussing income and expenses with the client.
Clients also have an obligation to reveal their true living costs & expenses.
Here are three tips when addressing expenses –
1) Ask the right questions
Let’s face it – while most of us could state our income quite accurately, we would be hard pushed to put an exact dollar figure on our monthly outgoings. The range of expenses such as insurance, school fees, grocery bills and car payments can really add up and vary from month to month.
Asking the right questions helps –
- What is the amount and source of your income?
And do you have any other sources of income other than your work? - What type of work do you do?
Is it full-time or part-time, contract or permanent? - What are your fixed and variable expenses – for example, insurances, hire purchases, utility bills, private school fees and childcare, petrol?
And, what about entertainment and lifestyle spending?
Do you have any memberships? - How many dependents do you have?
- What are your current assets and liabilities – for example, current rent or home loan payments, investment properties, credit cards, store cards and car loans?
2) Verify the information
There are a number of ways to check the information you are trying to collate. Customers can now pull up bank statements on the spot (thanks to mobile banking apps), and many banks also now offer apps that help customers break down their spending.
It’s also useful to look through the transactions in the past month. Including what direct debit arrangements that are in place.
3) Confirm and document
Once you have completed an independent assessment of your income and expenses – it is essential to check them against statements and transaction history. Also, to identify any expenses that may have been overlooked.
Financiers will now check bank statements etc to verify if what the client has declared is consistent with their banking history.
There are many spreadsheets and budgeting tools available on the net or mobile apps to help with these calculations.
Clients also want to know themselves that the loan they are about to enter into is one they can manage – as no one wants to be on a financial diet long term!
For more advice, tips, budgeting tools and spreadsheets to help you get control of your income and expenses, give me a call on 0418 903 954.
Donna-lee Parkes
Credit Advisor | Celsius Finance