What risks would you advise the credit manager to consider in the structuring of motor vehicle...

What risks would you advise the credit manager to consider in the structuring of motor vehicle loans?

Expert Solution

Some of the followings risks should be considered while structuring of motor vehicle loans are :

a. Type of Loan : The person taking the loan and the bank should consider what type of loan is being given. The assessee should monitor all types of loans and then take a informed decision which type of loan is best beneficial to him/her.

b. Interest Rate :The interest rate should be minimal to ensure maximum gains to the assessee and the person should evaluate all options carefully because even a percentage of interest which is compounded monthly or quarterly may be more beneficial than the interest rate compounded annually.

c. Penalties : The penalty on not giving an EMI should be monitored. The penalty should't be such that the assessee personal finance will be impacted in a huge way. The number of deafults allowed and the conditions shoul not be so strict that the motor vehicle is being taken by the loanee

d. Down Payment Amount: The entire amount is generallly not loaned by the bank and involves a percentage of upfront payment to be made. This should be evaluated by the assesee whether he has the money and decide the down payment accordingly.

e. Loan Term : The loan term should be also of ideal length for the assessee. The term should be not so long that the assesee has a huge loss and should be such that he can take other loans which the assesee might have planned to take in the future.

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