Probably if you have ever tried to apply for a loan you have found that the supplier of said product wants to assess your credit risk. Since it is the surest method of finding out if you are a solvent person who can deal with debt. However, do you know what credit risk is and how it works? In Private Capital MB we explain it to you.
When we talk about credit risk we do it to refer to the study that a lender carries out in relation to your financial capacity when you request a credit. The study of the probability that you will default, or not, the agreed payments, is precisely what will guide them on the viability of your loan.
To find out this risk, credit reports are used where the client’s history is reviewed. In the event that the file is not clear or clearly indicates that you do not have sufficient capacity to meet the payments, the loan will not be granted.
However, it is quite a complicated job, since it is very difficult to make a reliable assessment of the client’s ability to return. You never get a completely sure answer that confirms to the lender that you will get your capital back. Hence, due to the risk they run in these operations, they always receive interest. Which will be higher or lower depending, among other factors, on credit risk.
What methods are used to find out the credit risk of a future client?
There are different methods that combined offer a very accurate assessment of a client’s credit risk. Lenders use these values to determine if it is feasible to offer credit. These values are:
- The ability of the client to meet the expenses it assumes. The normal thing is to offer loans to those clients whose indebtedness level does not exceed 40% of their monthly net income. Some banks even drop this amount to 30%. In other words, if the client already has several loans and in total these represent around 25% of his net income, they will not offer him a very high amount. If the debt level is 40%, many will directly deny you the loan.
- The capital you have. Including both your periodic income and your savings or possible guarantees.
- Your credit history. To review the credit history, it is normal for financial institutions to go to the lists of defaulters in Spain. The most used is Financial Credit Institution. It is also possible to consult the client’s CIRBE and find out if they have already been granted other loans and if they have been properly resolved or took a little longer to repay.
- And the loan conditions are closed
Credit risk and interest rate on loans
Credit risk is a truly important value. And that must be in our favor to get a good loan. Since the lower the credit risk, the lower the interest that the lender will charge for your money. However, if the risk increases, so will this rate proportionally. Therefore there is a direct correlation between both values.