Ministerial reviews could mean tests for loan applicants

It has been revealed recently that ministers are carrying out reviews of the consumer credit and personal finance markets in the UK, with plans to review a range of rules relating to this sector in order to improve safeguards on financial products wherever it is deemed necessary.

According to reports the ministerial review could result in those applying for loans having to take a financial literacy test so that they do not end up taking on a loan that they cannot really afford to repay. If the tests are brought in following the review they will be designed to ensure that potential borrowers understand the rules and details on the loan that are looking to take out.

Consumer Affairs Minister Edward Davey said that the purpose of the review and any subsequent changes was to “improve the safeguards on consumer credit products, where this is necessary.” Ministers have expressed concern over consumers taking out loans that they cannot afford because they do not understand the terms that they are signing up to.

The Learning and Skills Council undertook some research last year, and revealed that almost 90 percent of consumer failed when it came to basic financial calculations. Whilst some schools are now introducing financial management for students most of those that are looking for finance at the current time never had this included in their education.

The testing for applicants that have applied for a loan would take place before the loan can be finalised by the lender, and will ensure that the applicant understands the full terms and details of the loan before signing the paperwork and committing to the loan. With more and more people struggling to cope financially and declaring themselves insolvent this is something that ministers believe may now be necessary.