Question

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

Answer 1

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.