Before approving a loan, what does responsible lending require?

• A. Approve loans that meet the minimum credit score.
• B. Require no verification of information.
• C. Make reasonable inquiries into the borrower's needs and financial situation, verify information, and assess whether the credit is suitable and within the borrower's capacity to repay.
• D. Only verify income and employment status.

Answer: (C)

The main idea is that responsible lending means making sure a loan is suitable for the borrower before approving it. It isn’t about chasing a single number or skipping checks.

The best choice captures three essential steps. First, it requires the lender to make reasonable inquiries into the borrower’s needs and overall financial situation. This means understanding why the loan is needed, how it fits the borrower’s goals, and what other financial commitments they have. Second, it involves verifying the information the borrower provides, so the lender isn’t acting on unauthenticated claims. Third, it asks the lender to assess whether the credit is suitable and within the borrower’s capacity to repay, which includes evaluating income, expenses, debts, and the proposed loan payments to ensure they won’t push the borrower into hardship.

Why this approach is superior: it addresses affordability and purpose, reduces the risk of over-indebtedness, and protects both the borrower and the lender. Relying on just a minimum credit score misses the full picture of the borrower's financial reality. Not verifying information opens the door to misrepresentation, and only verifying income ignores other important factors like living expenses and existing debt.