A Complete Guide to Claiming Unaffordable Lending
- What unaffordable lending is
- Reset your credit score
- Potentially receive 8% simple interest on top
Lenders can be guilty of increasing loan limits without properly consulting their customers. This causes you to spend more money, putting you in a worse situation than you were before. Although just one example, this is unaffordable lending. By not fulfilling their duties accordingly, the lender is guilty of forcing you into a worse financial situation.
This article will explain what counts as unaffordable lending and how to do something about it when you’re in trouble. It will also detail how to go about making an unaffordable lending claim. Finally, the article will explain why it’s a good idea to claim and how it can help your situation.
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What Is Unaffordable Lending?
Essentially, this is when lenders have piled on an unnecessary amount of debt on the people they lend to. When providing loans to consumers, lenders provide checks to ensure that anyone is able to afford repayments. If these weren’t done or you were encouraged to spend more for better rates, you could be a victim of unaffordable lending.
With an increased amount of credit at your disposal, you may find that you’re unable to keep up repayments or you struggle to pay for essential bills. In some instances, you may even be forced to borrow more to pay off existing loans. Unaffordable lending claims are designed to help people out of these situations and reset them to where they were before the loan was taken out in the first place.
When you make an unaffordable lending claim, you ask for redress in the following ways:
To have your debt written off or reduced
To receive compensation
To have your credit score reset
Depending on whether the loan has already been repaid or not will affect how your claim proceeds.
What Situations Qualify for Unaffordable Lending Claims?
There are many instances in which you could make a claim, but a lot of them boil down to the lender not doing their job properly. If you’ve suffered from any of the below, you should be eligible to make an unaffordable lending claim.
Lack of affordability checks
Struggling to pay bills
Taking out additional loans to keep up repayments
Risks of additional borrowing not explained clearly
Fees and charges not made clear
Additional borrowing was encouraged with better offers
Your circumstances weren’t considered at the time
Lenders are supposed to look at your circumstances in detail before they grant you a loan. In essence, you should not struggle to afford repayments or be worse off. If you’re unable to pay for essentials or mortgage payments on top of these loans, you’re a victim of unaffordable lending.
What Happens When You Make a Claim for Unaffordable Lending?
Once applied for, a claim for unaffordable lending is a chance for your lender to review the financing arrangement. They need to be fair in how they deal with their customers, so will be as understanding as possible.
Where a loan was repaid, you could be refunded interest and charges and gifted 8% simple interest. If there is an outstanding balance, your loan becomes interest-free and any existing payments are taken off the remaining amount. If this puts you over the loan amount, you are then rewarded the 8% simple interest.
A claim can be broken down into the following sections: refund, interest and credit file. It works in a similar fashion for credit cards.
Refund
If your claim is successful against a loan you were unable to afford, you will receive a refund for any money spent on it. You will receive any interest and charges back that were placed on the loan. However, you are still usually expected to pay the capital amount of the loan back. It would just then turn into an interest-free loan.
Interest
As well as the refund on the interest and charges, you may also receive an additional 8% interest on top of this. This money is meant to compensate you for not having any money available throughout the repayment schedule. The 8% interest is calculated per day. If, after the claim, there is still an outstanding balance to be paid, you will not be awarded the 8% interest.
When paid interest in this way, it counts as income in the eyes of HMRC, so it will be taxed accordingly. Most lenders will deduct the basic rate of tax before giving you the 8% interest, but it won’t come off interest or charges on the loan itself.
Credit File
In the event of a successful claim, any negative effects from the loan are to be removed from your credit history. The idea is that an unaffordable lending claim resets you to where you were before the mis-sold loans were given to you. In this instance, adverse information could be removed from your credit file or the loan could be taken off completely.
Unaffordable Lending for Credit Cards
It’s still possible to make a claim for unaffordable lending if you had credit or store cards. More often than not, the unaffordability of them is based on your credit limit being increased. This could have been without consultation or without taking into account your circumstances. A £500 extra credit limit may have been the wrong thing to do in your situation, so a claim essentially resets this.
In the case of a successful claim for a credit or store card, such as from Very, the lender will refund any interest and charges above your original credit limit. So if your limit was £500 and they increased it to £1,000, anything above £500 will be refunded to put you back into the position you were before.
How to Claim
There are a few ways in which you can claim unaffordable lending, and it can depend on how much time you have on your hands and whether you’ve been unsuccessful in dealing with your lender.
Before You Claim
To start off, you need to make sure you have enough evidence to support your case. This can be in the form of bank statements, payslips and financial records of debts and outgoings. If you have any correspondence from your lender, this can also be useful.
Use a Claims Management Company
In a lot of instances, you may not be able to wait a couple of months to see if the lender accepts your claim for unaffordable lending. Even then, you might have to refer to the ombudsman and still be struggling to keep up repayments. Sometimes, it’s much easier to simply use a claims management company.
With legal experts at their disposal, a claims company takes on your claim for you. They analyse your case and work quickly and effectively to force your lender to make things right. This can include any compensation if no repayments are left outstanding, in the form of 8% simple interest.
Contact Your Lender
With enough information, you should talk to your lender and say you’re suffering from unaffordable lending. Provide any evidence to support your claim and ask them to review your case. Your lender must then provide a response within 8 weeks.
Financial Ombudsman
Sometimes, lenders don’t agree that you have a claim. If you are unhappy with their response, or you don’t hear anything in the 8 week timeframe, you can contact the Financial Ombudsman Service and have them investigate. They talk to the lender and advise on what should happen.
Keep Up Repayments
When you begin a claim, it’s important that you don’t stop paying your lender back. Even though your case is being looked into, if you can afford repayments, it’s better to still do so. The claims process should resolve any negative credit history attached to your file as a result of this. If you’re unable to keep up repayments, a lender could still try legal means to recover costs from you. This can make the unaffordable lending claims process extremely uncomfortable.
Reasons to Claim
When it comes to loans and repayments, these should all be done responsibly and in a way that doesn’t make you struggle. If you’ve had to take out an additional loan to cover repayments, you’re not in a stable financial situation. If you’ve struggled to pay off essentials, like your mortgage or rent, because of repayments, you are suffering from unaffordable lending.
Making a claim during the repayment process eases the financial strain and helps make the loan more affordable for you. You can also make a claim after you’ve finished paying off the loan. This must be within the last 6 years, otherwise it isn’t likely to succeed. Making a claim for a past loan that was unaffordable gives you compensation for the struggle throughout the repayment schedule.
Unaffordable lending claims are easy to start. If you believe you qualify, click on the button below to start the process and provide your details.
What Is ‘No Win, No Fee’?
A 'no win, no fee' agreement is sometimes referred to as a ‘conditional fee agreement’. This is an arrangement between you and your chosen solicitor. The benefit of this is if your compensation claim is unsuccessful, you will not have to pay a contingency fee for your lawyer's services; however, a Termination Fee can sometimes apply.
The applicable fee is based on which solicitor you choose to use. Our panel currently consists of a number of law firms, which can also be found on our privacy policy under ‘who we may share your data with’. ‘No win, no fee’ varies, but is generally between 30–42%, including VAT.
What Is a Claims Management Company?
Money Back Helpdesk is a trading style of Lead Insight; Lead Insight is a claims management company (CMC). CMCs help consumers make claims for various products and services. We deal with the paperwork and administrative details for a cost, in the process trying to make claims as stress-free and seamless as possible.
The solicitor will handle the whole claim for you, representing you and dealing with whatever body it is that you are making a claim against.
Our panel of solicitors handle a variety of different claim types, from housing disrepair to mis-sold car finance, for a fee that is either taken as a percentage of the final payout or a lump sum payment, or sometimes both.
You do not have to use a CMC to pursue a claim. You can always contact the organisation directly and make use of the Financial Ombudsman Scheme, if dissatisfied, should the claim be one that falls into their jurisdiction.
