Question

Provide an example of how you present the loan option to the client, including explanation for why you chose that option or options. State the name of lender and an explanation of why you chose that lender

Answer 1

Let’s say you are a loan officer at JP Morgan and a client comes to you with $10 Million of loan requirement and you present him three options

Option A.

A loan of 10 million @ 7% compounded quarterly, the loan period is 30 years and payment have to be made annually.

Option B.

A loan of 10 Million @ 6.85% compounded monthly, the loan period would be 30 Years and the payment would have to made annually.

Option C.

A loan of 10 Million @ 6%, the percentage point that has to be paid on the loan at the beginning would be 2, loan period is 30 years and the payment is annually.

Here these options provide the client with different options and the bank is also able to earn ineterst at a justifiable rate of interest. Here these options provide the borrower as well as lender with an equal opportunity to negotiate further with each other. The lender I chose JP morgan is because it is a quite large and the amount of loan requirement is 10 million so for a small bank financing such amount might be difficult and they might not be willing to take that risk but for JP Morgan this amount is not very big given their balance sheet. Also these option provide the borrower with different effective rate. They have been calculated below just for the sake of understanding.