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Before granting a loan to an individual for some sort of vehicle, financial institutions always remain in doubt regarding the question: How creditworthy is the customer? Because just one mistake in judging the customer can lead them into bad credit. This is especially true in the case of auto financing. One may argue that auto financing is safe because you can get vehicle back from the client if he fails to repay the loan. But it?s not that simple. It may be mentioned that, unlike home finance where the value of the security tends to increase in with the passage of time, this is not the case in the auto financing. With the passage of time, the market value of the vehicle tends to decline.
In judging the creditworthiness of an applicant the two basic factors-- character and capacity-- should be taken into perspective. Character refers to the willingness of the customer to honor his obligations. It reflects integrity, a moral attribute that is considered very important by credit managers. Capacity refers to the ability of the customer to pay on time. It depends on the financial situation. If the client is a working employee, then it is important to know his salary and future promotional prospects. On the other hand, if he is a businessman, then general business conditions affect his performance of paying debt.
There are several ways in which you can find out whether a customer is likely to pay his debts: the analysis of financial statements, obtaining bank reference, analysis of firm?s experience and numerical credit scoring. Financial statements contain a wealth of information about the customer?s financial condition and performance. A searching analysis of these statements can provide useful insights into the creditworthiness of the customers.
Financing provides detailed information on Financing, Business Financing, Auto Financing, Financing For Home Improvements and more. Financing is affiliated with Business To Business Finance.
Jennifer Bailey
Tags: Financing, Business Financing, Auto Financing, Financing For Home ImprovementsSimilar articles
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