There is a difference in affordability and recoverability. While you should care about affording a car/house/furniture or whatever you are asking a lender to finance, the lender truly cares about whether they can recover what they have advanced plus interest. The two assessments are not always the same and therefore, dont rely on the lender to determine affordability, he doesnt really care once he has determined recoverability. Affordability may include the following: 1. How much of priority spending (childs future education, health care) you will sacrifice to buy that item on credit 2. How much will you be left with to respond to emergencies after making the monthly repayments of the debt 3. What are the additional costs of owning the item bought on credit (insurance, repairs, licenses, legal fees, levies eTc) and do you sacrifice or tap into your savings intended for other things, in order to finance these additional costs of ownership, or you need to take additional debt. Whereas recoverability may include: 1. The lenders ability to recover monthly premiums before you spend a cent of your earnings (I.e. as soon as money enters your account) 2. Making sure you take insurance and the lender is the first to claim his balance outstanding on loss or damage of the item 3. The lenders ability to repossess the item once you start defaulting and to attach any other assets should the value of the item be insufficient to cover the outstanding balance. As you can see, it is possible that the lender can approve your application even when you dont truly afford. The lender is running his own business and has certain assurances he looks for and parameters. You should take charge and responsibility of your own finances and not delegate it to someone who has other priorities. Im not bashing lenders, Im bashing the borrower. The lender can be helpful and be a great partner to a smart and responsible borrower. The relationship is made one sided by the borrower (and yes some lenders do exploit ignorance)
Posted on: Mon, 29 Dec 2014 11:14:04 +0000
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