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Looking At The Economic Benefits Of Responsible Lending

BY Rebecca | 22 April, 2016 | no comments

Responsible lending is an essential when it comes to a healthy economic system. Its purpose is to help consumers to have a higher standard of living and even be able to get them through a short term financial crisis, while lenders can earn a reasonable rate of return money on what they lend. Responsible lending regulation of the loan market ensures that borrows are as educated to their rights fully and clearly informed before accepting the terms and conditions attached to all loan offers.

Effects On The Economy

Responsible lending is what makes up a successful economy, financial institutions such as banks, credit unions and mortgage companies depend on the public for taking out loans, such as pay day loans which can help to tide a person over until the end of the month. The financial institutions that you borrow from, depending on the interest on successful loans depend on whether or not they make a profit, if lending is done badly then the results have a negative impact on various things including borrowers could suffer the loss of their home or other possessions, and their credit rating takes a plummet.

Lenders are also faced with negative consequences, as they have to then take legal action against the borrowers. Collection agencies and court cases are expensive and complicated, as well as offering no guarantee that they will gain the amount of debt that is owed. When there are too many foreclosed homes are for sale or even rent there is a knock on effect and real estate prices drop. Bad lending for both borrows and lenders is a very negative situation which then massively impacts the economy. If lending is done correctly there isn’t just a positive affect on the economy it hugely benefits the borrowers just as much as the lenders.

Builds Credit

Before you are able to loan any money from banks and other lending companies they all look at your credit history. Lenders determine whether it is suitable for you to borrow money depending on how well you have paid back previous loans. Most lenders won’t tell you that different lenders rate your credit history differently, so if you have been rejected by one, that doesn’t automatically mean others will.

The benefit of lending money from you bank first is that they already knowing your spending patterns and have monitored your incomings as well as your outgoings. If you have a good credit history banks and lenders will be more willing to give you larger loans. It is also practical to use one banking institution as it allows you to manage your accounts more easily instead of juggling various amounts of loans from different accounts.


The reason people borrow money in the first place is that it is convenient. The use of credit cards is also an extension of lending and is a highly convenient way to get money for daily or maybe just the odd monthly expense. Although the majority of people actually only lend money for a mortgage. Most financial institutions offer mortgage loans which give the public the opportunity to own their homes. It allows borrowers to lend a mortgage loan at low interest rates so they are able to buy a house or property. The thing about mortgage lending is that it is limited depending on your salary and your credit rating.

Your credit rating is incredibly important when it comes to responsible lending so when you are young you must take steps to build a good credit rating. However you can always boost your credit rating by simply paying bills on time, if you have a credit card make sure you are making minimum payments regularly and even reduce the amount of debts you have. All of these things lead to responsible lending which has a positive impact on the economy.


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