Question

As a credit Manager discuss how you will appraise the credit application of a loan applicant who has applied for a credit facility of $ 500,000 from your bank branch.

Answer 1

Before providing credit facility to any customer, many factors are considered and taken into account. Some of these factors are:

· Income level: The level of income is one of the most important criteria to be considered before providing credit to anyone. The customer income should be sufficient enough that he is able to pay back the loan when he is borrowing.

· Credit score: Credit score is also a quite effective measure to judge an individual creditworthiness and helps in understanding the past credit history of the applicant. High credit score means that customer defaulting on the debt is low.

· Repayment ability: Repayment ability is also a very important thing, just because a customer has good score in the past does not mean that it is going to remain like that in future, the manager should try to judge the repayment ability of the customer.

· Current debt: It is also important to look at the level of current debt because current debt should not be very high because if that is so there is certain probability that he might default on future debt.

· Expenditure pattern: It is also important to understand the expenditure pattern. The revenues or sources of income are only as good if they are more than the expenditure, if the expenditure is more than income then it would become difficult for the customer to repay back the loan.

besides this other criteria can be looked upon like Character, his past repayment on loans and his stability of sources of income.