Before a UK lender can approve most forms of regulated credit, it has to do more than simply ask how much you’d like to borrow. Financial Conduct Authority (FCA) rules require lenders to carry out an affordability and creditworthiness assessment — a legal requirement, not just good practice — before entering into most regulated credit agreements, and before significantly increasing the amount of credit on an existing one.
Where the rule comes from
The requirement sits in CONC 5.2A of the FCA’s Consumer Credit sourcebook. It sets what the FCA describes as an “outcomes-based and proportionate framework” — rather than a single fixed checklist every lender must follow identically, firms are required to reach a reasonable assessment based on sufficient information, with the depth of that assessment scaled to the circumstances of the loan.
What “sufficient information” actually means
The FCA has been explicit that it’s generally not enough for a lender to rely purely on what a borrower says about their own income and outgoings. That’s the reason many short-term lenders now ask for bank statements, payslips, or an open banking connection during the application process — the lender is expected to form its own reasonable view of your financial position, not simply take your word for it.
What counts as “sufficient” scales with the loan itself. The FCA sets out that firms should take into account factors including:
- the amount of credit and its cost;
- the duration of the agreement;
- the potential for the total cost to increase over time (for example with running-account or higher-cost credit); and
- the individual circumstances of the borrower, where these are known to the lender.
What the check is actually trying to establish
The core question a lender’s assessment must answer is not simply “can this person technically make the repayments,” but whether the borrower can repay sustainably — meaning without the repayments causing significant financial difficulty, or forcing the borrower to borrow again to cover the gap the original loan was meant to close. This distinction matters: a loan that is technically repayable only by cutting into money needed for essential bills, or by immediately taking out further borrowing, does not meet the sustainability standard the FCA expects lenders to test for.
What lenders are not required to do
The FCA has also published guidance clarifying some common misunderstandings about what CONC 5.2A does and doesn’t demand. Contrary to some assumptions, lenders are not required to:
- carry out a full income and expenditure check in every single case;
- independently verify every piece of information a customer provides; or
- run a credit reference agency check for every type of application.
Instead, firms have discretion over methodology — including using automated decision processes — provided they can demonstrate the approach reasonably assesses affordability for that type of lending.
What this means if you’re applying for short-term credit
If a lender approves an application very quickly with minimal questions, that alone isn’t necessarily a breach of the rules — it may reflect a proportionate assessment for a small, short-duration loan. But if you’re asked for supporting documents, or a decision takes longer than you expected, that’s often the affordability assessment process working as intended, not unnecessary friction. If you’re refused credit, it may be because the lender’s assessment concluded the loan would not be sustainably affordable for you specifically, even where the amount involved is small.
What to do if you think a lender got it wrong
If you believe you were given a loan you clearly could not afford — for example, one that immediately consumed most of your income leaving nothing for essential costs — this is grounds for a complaint to the lender, and if unresolved, to the Financial Ombudsman Service, on the basis that the affordability assessment required under CONC 5.2A was not properly carried out.
FAQs
Does a “soft” credit check mean no proper affordability assessment happened?
No. A soft credit check affects how a search appears on your credit file, but it’s separate from the underlying affordability assessment, which can still be robust even where the credit check itself was soft.
Can a lender approve a loan based only on what I tell them about my income?
Generally no — FCA guidance says relying solely on self-declared income and expenditure is not usually considered sufficient, which is why supporting evidence such as bank statements is commonly requested.
Is the affordability check the same for every type of credit?
No. The assessment is proportionate to the type, amount, cost and duration of the credit — a small, short-term loan and a large, long-term loan are not held to an identical process.