Bank loan default process

On March 27, 2011, in News, by Lewis Alexander
  • free credit report UK from ExperianSince the start of the credit crunch, financial news in the UK has been littered with news about sub-prime lending, bad debt, poor credit risk decisions and negative reviews on how little the high street banks are now lending personal and small business customers.

In effect, the kamikaze lending of the early ‘naughties’ has been replaced with the polar opposite of a lending freeze as banks attempt to repair their decimated balance sheets and prove to regulators and the government that they are viable businesses that no longer require tougher regulation and handholding to restructure their business models.

This is in stark contrast to the type of lending that was made in the 1950’s and 60’s when the role of a High Street Bank Manager was considered to be a responsible, respectable leader at the heart of a community.  During these times, any lending decision made was preceded by an application and the personal interview of the person(s) applying to consider their suitability for the loan in question.

A holistic approach was taken to the ‘credit risk’ decision by a bank manager or one of their senior officials.  In this process, the application, interview, local knowledge, return on investment and sheer  ability (and willingness) to repay a loan were all considered key elements of equal importance, In stark contrast to the ‘computer says no’ processing that Little Britain has regularly satirise.

Perhaps an overlooked feature of the process from these post-war years was inclusion of walking prospective borrowers through the full consequences of a default or failure to make the repayments.  This process included stating in full all the charges that would be incurred, how the bank would go about reclaiming the money, what this would feel like for the customer and ultimately how debt collection agents would go on to seize assets that have been secured against any loans if necessary.  This cold, yet stark appraisal of the worst case scenario at least left all borrowers in no doubt of what would happen if the repayments could not be met.

This is in contrast with today’s process of handing out 100-page booklets detailing the terms and conditions of the loan (which in fairness do highlight charges that would be incurred from non-repayment) but these statements are written down and are not accompanied with a full and frank description of what this collection process would feel like.

The modern bank executive manager would suggest that a return to such a halcyon age would result in the increase in application times and thus reduce the profitability of each branch and employee.  But perhaps this overlooks the need for banks to play a more active role in educating society and fulfilling the role of responsible lending.

Getting into trouble and behind your scheduled rate of repayments is easy and the stress this causes can build up quickly.  If this position rings true for you, then perhaps a call to one of our debt management specialists would help you to restore order, structure and a help to plan long-term to get yourself out of debt and back into the black.

Our dedicated debt advisors are available on 0800 018 6868 and we are trained to advise on your specific circumstances and help you take control of your finances once again.  We understand the intricacies of the modern day personal debt and are happy to try and explain any complexities you did not previously understand, together with the collections and recoveries process that most financial bodies use.

Simply understanding the perspective of your lending institution can help you to form an action plan for you to put into practice.  So don’t delay, if you need help with debt call Lewis Alexander today using 0800 018 6868.

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Refused loans but I don’t know why!

On March 1, 2011, in News, by Lewis Alexander

free credit report UK from ExperianDespite the recent announcements of profits in the banking sector and the sizeable bonus payments that accompany this news (let’s not get into that!) one fact does remain.

  • It seems to be getting harder and harder to be accepted for a personal loan in the UK.

This is due to a number of factors as follows:

  • Purely and simply, banks have tightened their criteria for lending
  • There is a smaller pot of money that banks are using to lend out to customers
  • Previous credit records are being more closely scrutinised

Which to be honest is all underpinned by the fact that banks are looking to fundamentally change the structure and the risk reflected in their balance sheets.  Having re-read this a number of times, your blogger is in danger of sounding like an ultra boring accountant, so lets look into what this actually means in more detail.

1. Banks are being asked by the coalition government (and the EU) to reduce the overall risks taken in their lending, to avoid a repeat of the recent financial crisis.  In the longer term, this may see some banks be ‘split’ so that there retail divisions (everyday banking for you and I) are split from their investment arms.

NB: When the papers talk about ‘grotesque bonuses’ it is very rare for anyone in the Retail divisions to be in receipt of these substantial sums.  Therefore, try not to get too angry with the customer services clerk who serves you in your local high street branch!

  • The banking crisis and bonus culture cannot be attributed to he or she!

2. In response to being asked to reduce overall risk, the executive boards of major banks have decided that the overall amount of money available to lend to individuals and to small and medium sized businesses should be reduced.  This means that there is the same amount of people competing for a reduced pot of money.

Specifically in response to reducing the ‘risky’ lending, it is considerably easier to tighten up lending scorecards to personal customers and small businesses.  These scorecards are basically a list of questions, where the responses are used to make decisions on granting a personal loan or approving an overdraft or credit agreement.  For retail customers these scorecards can prove to be very accurate predictors of what constitutes a ‘good’ lending decision.

During the height of personal borrowing in the UK,  these scorecards were ‘loosened’ slightly, which meant that banks accepted that there may be a higher volume of cases which default, in exchange for obtaining an increased overall lending pot (and increased interest payments to fuel profits).

3. Finally, the executive management of many of the large UK banks have decided to go ‘back to basics’ and instead of borrowing money from international markets, in order to lend to retail customers, they would go about things in the traditional way.  Encourage more savers to deposit with them, prior to lending out a safer proportion of saver’s funds.

Whilst this is a noble response, it also doesn’t take a genius to work out that when the average savings deposit account on the high street pays less than 1% gross interest (and the UK inflation rate soars towards 5%), depositing funds into a high street bank is a less than attractive proposition.

  • So, where does this leave you, the borrower, looking to obtain funds to allow you to purchase that new car, or build the extension at the back of the house?

At Lewis Alexander, we specialise in debt management advice and advice if refused a loan, we may be able to help you obtain access to borrowing if you qualify.

One free call to our personal debt and personal loan advisors on 0800 018 6868 could help you understand how you can restructure your existing borrowing or rectify your credit rating.

  • Our advisors are all professionals and will treat your call in the strictest of confidence.
  • So call us FREE today to see if we can assist you in your borrowing plans for 2011!
  • Call 0800 018 6868
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