The Importance of Affordability

by | 4th January 2017 | Analysis

One of the first things many businesses do before offering a customer finance is to credit check them. And whilst there is no denying that this is a good indicator of how responsible the customer has been in the past; that’s not to say that the people that are being turned away are not equally as reliable.
There are many reasons why someone may have a less than perfect credit score. It can range from having had a financial problem in the past due to unexpected circumstances to just not having built up a credit history yet. This is where a standard credit check will fail you, as you are turning away business for no good reason.
Now, that’s not to suggest that there should be no measures in place to assess whether the customer can afford the repayments; after all, responsible lending is key.
Whilst we don’t provide a credit check (at the time of writing), the PayItMonthly system includes an affordability statement that the customer will complete. It will give you a good idea of whether the customer’s income and outgoings will leave them able to pay the agreed instalments. As you oversee who you accept, you can make the decision there and then as to whether you accept them.
Well, as previously mentioned, this will allow you to accept more customers than before, increasing sales. Customers often get refused due to being on benefits. People claiming benefits can have a steady and healthy income. By using the affordability assessment, you are able to offer finance to a much wider market whilst still ensuring you are lending responsibly.

Anyone who falsifies their affordability statement with the intention of not paying is committing fraud by false representation

The concern that businesses may have is that if a customer completes an affordability statement as opposed to being credit checked, there is a chance the customer will exaggerate income and play down their outgoings.

The customer is legally required to enter accurate information when completing an affordability statement. A customer who falsifies this information to gain something which may cause a loss to another is committing fraud by false representation. The form the customer completes requires them to check a box confirming that the information they have provided is true. Therefore, it really is in the customers’ best interest to be truthful when completing the statement.

It is a good idea to let the customer know that it is important that the information they provide needs to be a true reflection of their circumstances, as this not only protects you, but them as well.

Because you are the one making the decision, it gives you more scope to make that informed decision, based on what you can see. If you are not comfortable offering the finance to a customer, you don’t need to. However, if you are inclined to offer it to a customer but couldn’t due to a credit check, you can now have that option.

To see what our affordability statement includes, please click here to have a look.