Responsible Lending vs Responsible Borrowing: What Is the Difference?

When you apply for credit, you and the credit provider have different roles to play.

You may hear the terms “responsible lending” and “responsible borrowing” used when discussing personal loans, but they do not mean the same thing.

Responsible lending refers to legal and regulatory obligations that apply to lenders and other credit licensees. Responsible borrowing is a practical way of describing the steps you can take to decide whether borrowing is appropriate for you and manage a loan carefully.

At Sunshine Loans, we believe understanding both sides can help you make a more informed decision about credit, know what information you may need to provide and understand what to expect during an application.

Responsible Lending vs Responsible Borrowing at a Glance

The simplest distinction is:

Under Australia’s responsible lending framework, a credit licensee must not enter into, suggest or assist with a credit contract if it is unsuitable for the consumer.

Responsible borrowing does not replace those obligations.

Even when you believe you can afford a loan, the credit provider must still carry out the inquiries, verification and assessment required in the circumstances.

What Is Responsible Lending in Australia?

Responsible lending forms part of Australia’s consumer credit framework.

Under Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth), responsible lending obligations apply to relevant credit licensees.

In general terms, the process requires a credit licensee to:

• Make reasonable inquiries about your financial situation.
• Make reasonable inquiries about your requirements and objectives.
• Take reasonable steps to verify relevant financial information.
• Assess whether the proposed credit contract would be unsuitable.

What Does a Lender Generally Need to Consider?

Exactly what needs to be considered can depend on the credit product and your individual circumstances.

The assessment may involve asking about:

• Your income and where it comes from.
• Your regular living expenses.
• Your existing debts and repayment commitments.
• Why you need the credit.
• Your financial requirements and objectives.
• Other information relevant to whether you could meet the proposed repayments without substantial hardship.

You may also be asked to provide supporting information such as bank statements or evidence of income.

These requests are an important part of the assessment process. They help the credit provider understand your financial position rather than relying only on what appears on an application form.

Approval is also not determined by a single factor.

For example, meeting a minimum income requirement or having borrowed previously does not automatically mean an application will be approved.

What Does an “Unsuitable” Credit Contract Mean?

Broadly, a credit contract may be unsuitable if it does not meet your requirements or objectives or if you would be unable to meet your financial obligations under the contract without substantial hardship.

This assessment is based on the circumstances and information reasonably available at the time.

It does not mean a lender can predict everything that may happen in the future.

Your circumstances can change after you take out credit. For example, reduced working hours, an unexpected expense or a change in household costs could affect your ability to make repayments.

That is one reason we encourage you to consider your own financial position carefully rather than viewing loan approval as a guarantee that your circumstances will remain manageable.

What Is Responsible Borrowing?

Responsible borrowing means taking practical steps to decide whether taking on debt is appropriate for your circumstances.

It involves looking beyond whether you are technically eligible for credit.

Before borrowing, it can help to consider:

• What you need the money for.
• How much you actually need.
• Whether you have alternatives.
• The total cost of the loan.
• How repayments would affect your budget.
• What would happen if an unexpected expense arose.

Borrowing is a financial commitment. Taking some time to consider these questions can help you make a more informed decision.

Responsible Borrowing Before You Apply

Do You Need to Borrow?

Start by identifying the expense and the amount you actually need.

Borrowing more than necessary generally means paying interest or fees on money you did not need to borrow.

You should also consider whether credit is appropriate for the type of expense you are trying to cover.

If you regularly need to borrow for groceries, rent, utilities or other ordinary household expenses, another loan may place more pressure on your budget without addressing the underlying shortfall.

In that situation, you may want to explore hardship support, payment arrangements or free financial counselling before taking on additional debt.

Can You Reduce, Delay or Cover the Expense Another Way?

Depending on your situation, alternatives could include:

• Using available savings while maintaining an appropriate emergency buffer.
• Asking the service provider for a payment plan.
• Negotiating a later due date.
• Getting another quote for a repair or service.
• Postponing a non-essential expense.
• Checking whether you qualify for a no-interest or lower-cost assistance program.
• Reviewing your budget for money that could be redirected.

The most appropriate option will depend on your circumstances.

The important point is that taking out a loan does not have to be your first or only option.

Have You Compared the Cost of Credit?

When comparing personal loans, do not look only at the advertised repayment amount.

Consider features such as:

• The interest rate.
• The comparison rate, when applicable.
• Establishment and other fees.
• Missed-payment or default fees.
• Repayment frequency.
• Loan term.
• Total amount repayable.
• Conditions that apply if you repay the loan early.

A smaller regular repayment is not necessarily the cheaper option.

For example, extending a debt over a longer period can sometimes reduce each scheduled repayment while increasing the overall amount you pay.

Can Your Budget Absorb the Repayments?

Before applying, review your income and essential expenses using the same pay cycle that would apply to the loan repayments.

Remember to include costs that do not occur every week.

These might include:

• Vehicle registration and servicing.
• Insurance.
• School expenses.
• Medical or dental appointments.
• Annual subscriptions.
• Seasonal electricity costs.

Irregular expenses still affect the amount of money available in your budget.

Allowing for them can give you a more realistic picture of whether repayments may be manageable.

Responsible Borrowing During Your Loan Application

The quality of the information provided during an application matters.

You should provide accurate and complete information about your income, expenses, existing debts and other information requested as part of the assessment.

You should also make sure documents such as bank statements and proof of income are current and relate to you.

Do not deliberately leave out expenses or financial commitments in an attempt to make an application appear stronger.

Complete information helps us carry out an appropriate assessment of your application.

Read Your Credit Contract Carefully

Before accepting a loan, check the proposed contract and disclosure information carefully.

Make sure you understand:

• How much you are borrowing.
• The interest rate.
• Establishment and other applicable fees.
• Missed-payment or default fees.
• Repayment amounts.
• Repayment frequency.
• The loan term.
• The total amount repayable.
• Any relevant repayment conditions.
• What you can do if you experience financial difficulty.

Ask questions about anything you do not understand before entering into the contract.

Responsible Borrowing After Your Loan Begins

Responsible borrowing does not stop when an application is approved.

Once your loan begins, keeping track of your repayments can help you manage the commitment alongside the rest of your budget.

Practical steps can include:

• Including repayments in your household budget.
• Setting calendar or banking reminders.
• Checking that sufficient money is available before each repayment date.
• Being cautious about taking on unnecessary additional credit.
• Reviewing your finances when your income or expenses change.
• Contacting us early if you think you may have difficulty making a repayment.

You do not have to wait until a repayment has already been missed before asking about financial hardship support.

Why Responsible Lending and Responsible Borrowing Both Matter

Responsible lending and responsible borrowing support the same broad objective: helping reduce the risk that credit contributes to avoidable financial harm.

However, they remain separate responsibilities.

You can review your budget, consider alternatives and provide accurate information.

The credit provider must still complete the inquiries, verification and assessment required under the responsible lending framework.

Neither responsibility removes the other.

For example, telling us that you are comfortable making a particular repayment does not mean we simply accept that statement without carrying out our assessment.

Likewise, receiving approval from us does not mean you should stop considering the costs, terms and effect of the loan on your own budget.

A Practical Responsible Borrowing Example

Imagine your car needs an unexpected repair and you rely on it to travel to work.

Before applying for credit, you could:

• Ask the mechanic for a written quote.
• Confirm whether the repair needs to be completed immediately.
• Ask whether the mechanic offers an instalment arrangement.
• Review your available savings.
• Check your upcoming income and essential expenses.
• Compare available forms of credit and their overall cost.
• Calculate whether repayments would fit alongside rent, food, transport, utilities and existing debts.
• Borrow only the amount you actually need if you decide borrowing is appropriate.
• Provide complete and accurate information during your application.

We would then carry out our own assessment if you applied with us.

Depending on your individual circumstances and our lending requirements, we may approve the application, consider a different amount when available or decline it.

Approval should not be treated as confirmation that borrowing is your only or best option. It means we have assessed the particular application under our requirements and processes.

Common Responsible Borrowing Mistakes

Focusing Only on the Repayment Amount

A repayment might appear manageable when viewed on its own.

You should also consider the interest, fees, loan term and total amount you will repay.

Comparing the overall cost gives you a more complete picture than looking only at the weekly or fortnightly repayment.

Borrowing to Cover an Ongoing Budget Shortfall

A loan provides borrowed funds, but it does not increase your ongoing income.

Repeatedly relying on credit for ordinary household expenses can make it more difficult to regain control of your budget.

If your essential expenses are regularly higher than your income, consider seeking support before taking on additional debt.

Making Several Credit Applications at Once

Submitting applications to numerous lenders may make it harder to compare offers carefully.

Credit applications may also appear on your credit report, and making numerous applications may affect your credit score.

It can be helpful to research eligibility requirements and costs before deciding where to apply.

Waiting Until After You Miss a Repayment to Ask for Help

Financial problems are often easier to discuss before a repayment is missed.

If you think your circumstances have changed or an upcoming repayment may be difficult, contact your lender early to ask what options may be available.

How Responsible Lending Applies When You Apply With Us

We offer unsecured Medium Amount Credit Contracts from $2,050 to $3,500, subject to eligibility, affordability assessment and approval.

Amounts above $2,500 are limited to eligible returning customers who have successfully completed two Sunshine Loans on time.

Our current loan terms range from 63 days, or nine weeks, to 182 days, or 26 weeks.

Our currently published loan costs include:

Our loans are unsecured, which means you do not provide property or another asset as security for the loan.

Before you decide whether our product may be appropriate for you, review our loan eligibility requirements and loan costs carefully.

What Are Our Current Eligibility Requirements?

To meet our basic published eligibility criteria, you generally need to:

• Be at least 18 years old.
• Receive at least $750 per week or $1,500 per fortnight in take-home income.
• Have your take-home income visible in your bank statements.
• Be able to satisfy us that you can afford the repayments without being placed under further financial pressure.

Our eligibility information explains that qualifying income can include a combination of employment income and government benefits.

Meeting our basic eligibility requirements does not guarantee that your application will be approved.

We assess every application individually and consider the information relevant to your financial circumstances.

You can review our loan eligibility requirements, loan costs and frequently asked questions before deciding whether to apply.

Alternatives to Consider Before Borrowing

Depending on your expense and circumstances, a new loan may not be the only option available.

Alternatives could include:

• Using savings when appropriate.
• Asking a business or service provider for an instalment arrangement.
• Requesting financial hardship assistance from an existing creditor.
• Checking whether you may qualify for a No Interest Loan.
• Delaying a non-essential purchase.
• Reviewing whether insurance or another service may cover the expense.
• Speaking with a free financial counsellor.

No Interest Loans may be available to eligible people for essential goods and services, including expenses such as appliances, education costs or certain car-related costs.

Eligibility and approved uses apply, so check the program requirements before relying on this option.

What Should You Do if Repayments Become Difficult?

Contact us as soon as you believe you may have difficulty meeting a repayment.

You can use our contact and support options to ask about your current loan or discuss financial hardship.

We provide a dedicated hardship and complaints contact option.

You can also contact the National Debt Helpline on 1800 007 007.

Financial counsellors provide free, independent and confidential support and can help you understand your financial position and possible next steps.

Seeking assistance when your circumstances change is a practical and responsible step.

Frequently Asked Questions

Is Responsible Borrowing a Legal Requirement?

“Responsible borrowing” is generally used to describe careful consumer behaviour rather than the name of the lender assessment regime under the National Credit Act.

When you enter into a credit contract, you are still responsible for meeting your obligations under that contract.

The responsible lending obligations that apply to the credit provider remain separate.

Does Responsible Borrowing Remove the Lender’s Responsibilities?

No.

Your statement that you believe you can afford a loan does not remove the responsible lending requirements that apply to the credit provider.

Relevant inquiries, verification and an assessment of whether the proposed contract is unsuitable must still be completed when those obligations apply.

Can a Responsible Lender Guarantee Approval?

No.

Responsible lending involves assessing individual applications. Approval should never be treated as guaranteed.

The result of an application can depend on your income, expenses, existing debts, requested loan amount, requirements and objectives, and overall financial circumstances.

When you apply with us, we assess your individual application against our lending requirements.

What Information Should I Provide When Applying?

Provide complete and accurate information requested during your application.

Depending on the application, this may include information about your:

• Income.
• Expenses.
• Debts.
• Bank transactions or statements.
• Identity.
• Reason for seeking credit.

If you are applying with us and do not understand what information is required, ask us before submitting information you are uncertain about.

Is Approval Proof That I Can Comfortably Afford a Loan?

You should not treat approval as a guarantee about your future financial position.

Approval means the application has been assessed using the relevant information and requirements.

You should still read the credit contract, review the costs and independently consider whether taking on the repayments is appropriate for your circumstances.

Your circumstances can also change after the loan begins.

What Should I Do if My Financial Situation Changes?

Contact your lender promptly.

When you have a loan with us, let us know if you believe a change in your circumstances could affect your ability to make repayments.

You can ask us what hardship support or other options may be available.

Free assistance is also available through the National Debt Helpline on 1800 007 007.

Make an Informed Borrowing Decision

Responsible lending and responsible borrowing work alongside each other, but they are not interchangeable.

Credit providers have responsibilities relating to inquiries, verification and assessing whether a proposed credit contract is unsuitable.

You also have an important role in protecting your financial wellbeing by considering why you need credit, reviewing alternatives, understanding the cost and deciding whether repayments fit within your budget.

At Sunshine Loans, we want you to understand our product and its costs before you make that decision.

If you believe our loan may be appropriate for your circumstances, review our eligibility requirements, loan costs and repayment terms before applying. Every application is assessed individually, and approval is not guaranteed.

The information provided in this blog is for general informational purposes only and does not constitute financial advice. It is not tailored to the specific circumstances of any individual. Before acting on the information, you should consider whether it is appropriate for you, having regard to your objectives, financial situation and needs.