Once, there was a court case and a banker was asked for professional opinion whether it is true that a person is said to be in financial trouble if he had an overdraft. He replied that, on the contrary, it means he has enough credit standing to warrant the bank lending him the money (or something to that effect).
We have read enough of cases where the banks could not recover their loans which ended up as statistics known as Non-performing Loans or NPLs. The beauty of it was the ability to sell or transfer NPLs to another company, thereby making the bank more healthy looking.
There were cases of fraud where bank officers colluded with customers to enable them to borrow more than their acceptable ability (credit worthiness) to repay, which ended up inevitably as NPLs. It was like a scheme to defraud the bank, and ultimately its shareholders, and as we have seen in USA's sub-prime problems, it became the government's problem, and who else at the end but the taxpayers!
As the saying goes, 'if you borrow small, it is your problem, but when you borrow big, it becomes the bank's problem'.
I have never had a Hire Purchase loan before, and recently, tried to borrow a certain sum to buy a new car. In a way, I wish to know my credit worthiness as a retiree, and more so, whether my name had been misused somewhere unknown to me, and I could be a bankrupt without realizing it! We have read enough cases of people who knew too late about their bankruptcy status.
By just giving a copy each of my past two years confirmation from LHDN through e-filing, it set in motion the credit rating process. I was asked about a directorship of a private limited company which had been sold recently. Then another call from another officer asking about my present directorship of a dormant company. My home address, with a 'kampong' name was not inspiring I suppose, compared with say, 'Damansara Heights' or some more obviously high flown gated enclave address.
The problem with retirees is that of lack of recurring fixed incomes like salaries, and therefore current bank account statements would be hardly supportive. 'Any fixed deposits?' I told the officer that I am prepared to give only information necessary for the loan amount, no more, no less. I can understand the bank's position in trying to ensure lending to good customers, but invariably it would give the impression that they are prepared to lend only to those who already had enough money in the bank! Of course, that would be ideal to them – no risk situation. At one time, it was common to have a financially sound guarantor for just in case the borrower's financial situation turns unfavourable. One simply way would be, to ask my wife to be guarantor, a suggestion which I am expecting from the officer but will be humiliating to me! I am waiting for the moment to tell them off.
The bank's usual way of rating by way of a good salary has its weaknesses. It would not show, unless given bank statements, how the monthly income was spent in terms of monthly financial obligations like mortgage repayments, hire purchase instalments, and so on. Unless there is already a good system of reporting, amounts owed by the borrower to credit card companies are also important information. What about those unofficial loans from friends and relatives and possibly loan sharks?
For retirees, I would suggest other criteria like good financial management (all bills paid on time) and zero gearing (no outstanding mortgages or other borrowings). Consider the fact that a simple life style means prudence in spending, and not necessarily a lack of affordability. A simple question to ask is, 'Is it likely that this person would risk his reputation as a senior citizen with good record, by not honouring his financial obligations when signing this particular loan agreement?'
It all started with the car salesman's assurance that there will not be any problem. Slowly, the promises like for eg. new year's stock of vehicles will arrive late, so no choice but to take 2009's stock, will be broken one by one.
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