Question
In: Finance
Please DISCUSS the factors should be considered when EVALUATING A LOAN. (ANY FOUR)
Please DISCUSS the factors should be considered when EVALUATING A LOAN. (ANY FOUR)
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Expert Solution
The factors that creditors look at when considering giving a loan are-
1. Debt to income ratio- If the ratio is high, it becomes more and more difficult to get the loan because the creditor would like to make sure that the laon will be paid back. Hence, they need to assess the income of the individual or the business before giving the loan.
2. Value of Collateral- In order to secure the loan, creditors often seek collateral so that in the event of default, the collateral can be used to recover the amount of the loan. That's why the value of the collateral also becomes important and more often they try to get collateral of value more than the loan amount.
3. Liquid assets- The borrower should have some liquid assets available so that the chances of default on the loan go down and the creditor's money is secured.
4. Loan term- Loans with a longer term are more riskier than shorter term loans. Hence, the risk has to be accounted for while taking the decision about the loan.
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