31 March, 2016
Posted By David Pritchard
As a creditor or lender, you have the right and expectation to thoroughly analyze your clients before granting them requested loans. While some people may cry foul and declare that you are discriminating against certain people, it is nothing more than a smart business practice and should not be taken personally. After all, when you loan someone a sizeable amount of money, it will be your finances on the line, not theirs, if they fail to make their payments or lose it all to bankruptcy.
If you are a lender, you should always consider these aspects of a potential client:
- Credit score: Although it is just a number, a person’s credit score can tell you everything you really need to know about them upfront if you know how to analyze the information. If a client has a history of missing payments, using multiple lenders, or accruing debt, they will be issued a low credit score, down to 300 or so. If a client pays off their credit cards each month, relies on big loans only when necessary, and has successfully paid for large purchases like homes or automobiles, the credit score rises up to 850 or more.
- Income stability: Even the most financially responsible people can accrue some debt when they are going out on a limb for a new business venture or making a large, life-changing purpose. As a lender, you should be concerned with how likely they are to pay off their debts. Sometimes called capacity, this means judging their past income and career stability to determine if they will continue to make money in the future.
- Collateral products: What does your client already possess when requesting a loan? If they are looking for a sizeable amount, you may want to ask them to offer some of their own property as collateral, or something you get to keep or control should they fail to pay back their loan. Common assets chosen as collateral are automobiles with high resale value and real estate.
- Backup plans: A reliable client for your loan will have backup plans, or capital kept in reserves. Savings accounts, investments in companies, and stocks can all serve to repay their loan if their primary means of income fail due to unforeseen circumstances.
- Purpose: Finally, you have a right to know, or at least to ask, what they intend to use your loan for. Are they trying to start a new business? Great! If successful, you should expect to see the loan repaid within a few years. Or are they just looking to add a new wing to their home? Not as great. There is nothing inherent to that purpose that speaks to their intent to re-earn the money they borrowed from you. Remember that you have the right to deny a loan if you do not believe their purpose for wanting it is suitable.
What to Do If Things Fall Through
You probably already know that there are no guarantees in the world of finances and lending. If you have given a loan to a client you trusted absolutely and they have stopped making their interest payments on it, you should consider your legal options as soon as possible to avoid losing big in the end. Contact The Pritchard Law Firm and our Fort Worth consumer collections attorney today to learn how we can help you with consumer collection concerns while staying completely within the boundaries of the law.
Consumer CollectionsConsumer LendingFAQ