It’s easy to get caught up in credit profiles, debt ratios and delinquency counting when making lending decisions. Often, I think lenders ignore some of the broader, more holistic repayment factors. Lenders may be doing themselves a disservice by focusing so much on the numbers and not asking themselves the simple question:
Is this borrower moving toward financial health by taking a loan?
When I put together standing orders, I only bid on lenders that are consolidating debt, investing in a business, or their education. I see home improvement loans and car loans as liabilities, not assets, and lenders shouldn’t be putting their own financial health in the hands of someone who is only acquiring liabilities that they can’t afford.The outcome of debt consolidation, business or debt consolidation loans are as follows:
Debt consolidation - Generally, a smart borrower can lower their interest rates on outstanding debt, decreasing their liabilities and supporting their financial health.
Business loans- While business loans are risky, we can only assume that business borrowers are maximizing their capacity to take a calculated risk in their business, providing the lender a second layer of risk mitigation.
Education loans- While, as many people know, a college degree doesn’t guarantee a higher salary, it is certainly a step toward greater financial health.
So ask the question, are borrowers doing the right things or the wrong things?
