Lending money to someone with just a few bucks makes you feel like a sucker when that person doesn’t pay you back.
For lenders who do business by granting loans to individual, incurring a loss would definitely hurt their pocket as much as it does on their ego. That is why every lender has their approach on granting an individual a personal loan singapore or small enterprise a business loan. There are risk management techniques that each lending organization or financial institution applies when they review a borrower’s credentials. These lenders may manage risk through a number of ways but they definitely look at the same requirements.
- Credit Score
A creditor or lender will always check the borrowers credit score. These gives the creditor an idea of how disciplined the borrower is when it comes to managing their debt. How often do they default, if they do and if debtor has a history of credit being written off. Credit score help the lender evaluate a borrower on their past behavior in managing their debt.
Lenders check and verify the source of income a borrower may have and how steady the income is. This is a factor that allows the lender to know if the borrower has enough resources to pay off their expenses. With the added loan, the lender wants to know if the borrower would be able to sustain the monthly payments despite of the existing expenses and additional charges brought about by the payday loan.
Some lenders look for in a borrower an asset that can be secured as a collateral. The reason for a security is for the lender to ensure that they will be able to recover any loss that they may incur in case of any form of default.
- Guarantor or Cosigner
Some lenders extend risk management to include a guarantor or cosigner to ensure full recovery of the loss that may be incurred. A collateral can only liquidate the cost up to the value of the asset that has been secured. Unlike a collateral, having a guarantor or cosigner will give a higher probability for the lender to recover the cost of low income loan in case of borrower’s default.