Learn about the good lending principles to borrow money responsibly and avoid falling into debt. Understand credit wisely and make informed decisions today! Today the offer of loans from banks and finance companies is increasingly wider: but how to choose the best personal loan among the different proposals and where is it best to ask for a loan ?
Are you considering taking out a loan but want to make sure you’re making a sound financial decision? By following these 12 good lending principles, you can borrow money responsibly and avoid falling into debt. Let’s explore each principle in detail to help you make the best borrowing choices for your financial situation.
Good Lending Principles From Bank And Finance Companies.
In addition to the present principles regarding advancing loan, there are some precautions might be helpful in this connection.
Safety of Loan:
Banks are profit oriented institutions, so their first preference is to get the amount of loan back. If the loan is likely to be unsafe the bank will not favor such loan. It is true in saying that the safety of loan is always preferred over profit.
Reasonable Profit:
The main object of the commercial bank is to earn profit. So, the granted loan should be a source of reasonable profit. Bankers try to lend their money at higher rates.
Diversifications of Loan:
It means grant of loans to different sectors. Some one has truly said “All the eggs should not be in one basket”. If the advances are made to different persons instead of one party, or to many sectors, the risk is divided. Hence there is least chance of loss.
Liquidity:
Liquidity means repayment of issued loan or its immediate conversion into cash at the time of need. Loan should be easily recoverable by the bank in case of emergency at short notice or on demand. While advancing loan, the bank must observe its liquidity.
Security of Loan:
Security is demanded to ensure the payment of loan with in the due time. Following qualities are essential for a good security:
- Easily Marketable
- Stable price
- . Non-perishable
- Reasonable Margin
- Easily transferable
Custody of Security:
Security may be in shape of documents or property. It is favorable for the bank to take all the securities under its own custody.
Joint Property:
Joint property might be a source of loss in case of non- payment, so the bank should avoid it. So the bank should obtain the consent of all owners in writing.
Disputed Security:
The bank should not accept any disputed property as security for loan. It means the rights of ownership of security should be confirm and clear.
Objective of Loan:
Loan granted for productive purposes are more useful for the banker as compared to non-productive loans.
Amount of Loans:
Instead of granting loan of huge amount, the bank should try to give small loans a large number of people.
Duration of Loan:
Loan should be issued for a possible minimum duration. Long-term loans should be avoided.
Source of Payment:
The borrower should have a reasonable and adequate source for the payment of loan otherwise recovery would be impossible.
Moral Character:
Personal character of the borrower should be considered. He should bear a good moral character.
Capability of Business:’
Borrower’s capability of doing successful business should be observed well by the bank before granting the loan.
Financial Position of Business:
Financial position of the borrower’s business would be a source of satisfaction for the banker. So audited Balance Sheet should be demanded.
Assets Already Accepted as Security:
A bank should be very careful about the fact that the presented asset has not been already accepted as security.
Increase in Value:
The value of security should be of increasing nature. This type of security is more favorable.
Insured Security:
Merchandise, vehicles and building etc. should be insured if these are being kept as security against certain loans.
Remember, borrowing money is a significant financial decision that can impact your financial well-being for years to come. By following these 12 good lending principles, you can make informed choices and borrow responsibly. Happy borrowing!
Conclusion
In conclusion, following good lending principles is essential to borrowing money responsibly and avoiding financial pitfalls. By understanding your financial situation, comparing lenders, reading the fine print, and creating a repayment plan, you can make sound borrowing decisions. Remember to stay organized, seek advice when needed, and practice financial discipline to ensure a healthy financial future. Choose your lender wisely, borrow only what you need, and communicate openly with your lender to build a positive borrowing experience. Enjoy the benefits of responsible borrowing by following these 12 good lending principles.