2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
Assessing the borrower's creditworthiness is one of the most important aspects of the lending process. This is a well-founded action on the part of financial institutions, since the correct assessment of the borrower's ability to repay the loan and interest on it directly affects the following parameters of the bank - risk, the quality of the loan portfolio, the potential level of debt repayment, the occurrence of overdue payments, and, as a result, the final profit credit institution.
It is not surprising that each bank pays increased attention to such a parameter as methods for assessing the borrower's creditworthiness.
As a rule, there is no single, universal methodology for all financial institutions. In each bank, credit specialists develop an individual assessment of the borrower's creditworthiness. However, common points are still present in the methods of banks, although they were compiled by completely different people.
Naturally, the initial level of evaluation begins with the definition of the borrower as an individual or legal entity. Analysis of the borrower's creditworthiness as a legal entity is a very time-consuming process, it is based ona variety of models and methods for assessing the financial condition and solvency. First of all, the initial financial statements of the company are considered, in particular, the structure and dynamics of financial flows, liabilities and assets of the organization, as well as coefficients characterizing the financial condition of the company.
If a legal entity can submit a huge number of documents on the basis of which it is possible to conduct a financial analysis, then the assessment of the creditworthiness of the borrower as an individual is carried out according to a completely different scheme.
Initial information about the solvency of a private borrower includes the following parameters - the dynamics of income, the level of expenses at the moment, the presence of credit, administrative and other obligations.
It is worth noting that the attitude towards individuals is more loyal, since many credit organizations take into account not only documented income, but also subjective facts that the client cannot confirm. Using the method of simple arithmetic operations - income minus expenses and liabilities - loan officers determine the ability of the client to repay the loan. It is quite natural that if the borrower's net income is insufficient, the application will not be approved. If the monthly payment on the loan will be more than 50% of the income, most often the answer will also be negative.
The assessment of the borrower's creditworthiness also depends on the type of lending. For example, recently a scoring technique based on the analysis ofthe minimum amount of information about the borrower. In particular, parameters such as the age of the client, his labor and social status and, of course, income are considered here. As a rule, a decision on such loans is made in the shortest possible time, some banks offer processing in just an hour.
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