FXCoral

Top 5 Attributes Of A Bad Borrower

Lending is a very lucrative venture, one that could potentially double the trading capital in less than three years of aggressive lending. Nevertheless, like every known business venture, lending has its own risk. And the greatest lending risk is the natural tendency for loans to go bad, sometimes to the extent that it will be written off. In this short article, I look at some of the attributes of a bad borrower. mediahandler.jpeg business-standard.com


It is pertinent to mention that the attributes I would mention here are based upon my years of experience working in the financial sector. Therefore, it might not have a universal application as with all theories that attempt to explain human behaviour. At any rate, any seasoned lender will agree with most of the attributes that will follow:

1. Bad Character

Character is one of the most important attributes on which any serious-minded lender would base his loan decision. A borrower with a good character is always willing to repay the loan even when the odds are against him. The character of a bad borrower is always bad, although he might put on a fake personality during the loan application. The job of a good loan officer or lender is to see through the garb of pretence and make the right decision.

2. Bad Credit History

If the bad borrower is not a first time borrower, chances are high that his credit history with other financial institutions will be quite bad. Therefore, the lender must put in place internal procedures that will dig into the credit history to ascertain the credit worthiness of the borrower.

3. Falsification Of Documents

Because the bad borrower takes a loan with the intention to defraud the lender, he is often tempted to provide fake documents that would either distort his true identity or exaggerate the worth of his business. In the latter scenario, the aim of the lender is to misrepresent certain facts in order to influence the loan decision of the lender. Consequently, every lender must have in place internal procedures and mechanisms that will be able to detect and blacklist defaulters.

4. Bad Referral

One of the easiest ways to identify a bad borrower is that he is usually referred to the lender by another bad borrower, sometimes by those whose loans have been written off. A bad referral is highly likely to make a bad borrower. For this reason, the lender must be able to ascertain who referred the borrower and the credit ratings of the referral. This will go a long way in preventing the lender from falling into the traps of a criminal syndicate that specializes in defrauding lenders by not repaying loans.

5. Frivolous Investment Plan

Finally, a good way to identify a bad borrower is to consider the merit of his investment plan. A bad borrower usually would have a frivolous, nearly meaningless investment plan. This is because he does not have the plan of paying back from the outset. A frivolous investment plan in the context of this article would mean an investment plan that adds no value to the business of the borrower.

Finance

Future reading