Loan Application Answer Sheet – File Number: 027 Loan Application –

Customer 1
Customer  
number  
and   Student  Bank    
Name      Age   credit  score   Credit  Ranking  
Customer   23  years  old       90+40+20-­‐50+50-­‐ Sub  prime  customer    
No.  1     20+10+100+100=   340   (non-­‐home  loans)  
 
Name:  
Gordon  MA    
 

Loan   Deposit  amount  and    

amount   Reason  for  loan   %  of  purchase  price    
$5,400   Buy  new  home  TV  system  with  no  deposit   No  Deposit  Applicable  
    for  this  loan.      

Existing  loan  
payments  and  
Loan  rate   remaining  rental  
Loan  term    %  pa   Monthly  repayment   obligations  
2  years       N  =  2  x  12  =  24   Car  Loan  of  $450  per  
The  rate  for   !!% month      
I  =   = 0.91667%    
!#
electronic  items   P  =  5,400× +  
is  listed  as   0.001!223(!50.001!223)78 Rental  
10.5%.       Accommodation  of  
(!50.001!223)78 9!
However  as       $1,790  per  month    
Gordon  is   =  $251.68   =  
classified  as  a     The  amalgamation  of  
Sub  prime   existing  loan  
customer,  this   payments  and  
leaves  him   remaining  rental  
liable  to  be   obligation  comes  to  
charged  an   $2,240  
additional  0.5%.    
Therefore,  his    
new  loan  rate  
will  equate  to  
11%.    
  
 

Gross  Wage   Dividend  &   35%  monthly  debt  

Income   rental  income   Total  Income     service  amount  
$61,230   $0   $61,230   $61,230
    ×0.35
12
= $1,785.88  
 
Monthly  debt  must  
not  exceed  35%  of  
monthly  gross  
income.  
 
Since  $2,240  >  $  
1,785.88  this  
indicates  that  
monthly  debt  does  
exceed  monthly  gross  
income.  
House   total  repayments  of  
Expenditure   HEM-­‐   Total  amount  of  all   loans  and  rent  
Measure   borrowing  limit   Loans   obligations  
Basic  living   $229,800   Car  Loan  of  $6000   Car  Loan  of  $450  per  
expense  as     +     month      
the   Be  advised:   Unsecured  Personal   +  
customer  is     Loan  of  $5,400   Rental  
an   $61,230  -­‐   =   Accommodation  of  
individual   $11,446.74   Total  amount  of  all   $1,790  per  month    
with  no   (standard   Loans  is  $11,400   +  
dependent.       taxable  income)   Personal  loan  
-­‐  $32,400  (basic   (electronic  item-­‐  TV  
living  expense)   system  )  of  $251.68  
=  $17,383.26    
remaining  per   Therefore,  the  total  
year  to  service   repayments  of  loans  
repayments  of   and  rent  obligation  
rents  and  loans   equates  to    
 
 
 =  $2,491.68  per  
month  or  29,900.16  
per  annum  
 

Loan  fits  within  guidelines   Recommendation  

Reason  why  or  why  not    
  Based  on  the  application  provided  and  
From  the  information  and   assessment  of  it,  the  loan  should  be  denied.    
evidence  gathered  above  we   The  following  recommendation  of  changes  may  
can  conclude  that  this  loan   enable  the  grant  of  the  loan:    
does  not  fit  within  the   1.   Improve  Credit  Score:  Gordon  has  a  
guidelines  of  the  Student   credit  score  of  340  and  is  thus  
Bank  Loan  Policy.     catergorised  as  a  sub  prime  customer.  In  
  order  to  improve  his  credit  score  and  
As  calculated  above,  it  is   essentially  obtain  a  better  loan  rate,  he  
evident  that  Gordon  has   could  consider  renting  a  home  instead  of  
approximately  $17,383.26  per   renting  an  accommodation  allowing  him  
year  to  service  repayments  of   to  utilise  the  prime  cusomter  standard  
rents  and  loans,  however,   interest  of  10.5%  as  opposed  to  the  11%.  
there  is  a  clear  mismatch   2.   Reduce  the  amount  applied  for:  As  
between  this  figure  and  the   Gordon  is  requesting  the  loan  to  acquire  
actual  amount  required  for   a  new  TV  system,  he  could  potentially  
annual  repayment  of  loans   reduce  the  loan  amount  and  opt  for  a  
and  rental  obligations  as   cheaper  TV  system  or  alternatively  he  
being  $29,900.17.  There  is  a   could  extend  the  loan  term  to  reduce  the  
discrepancy  here  of   ipact  of  the  loan  repayments  on  his  
$12,516.91  that  would  be  left   current  cash  flow.    
outstanding  as  Gordon  does   3.   Maintain  consistency  with  savings  
not  have  sufficient  funds  to   record:  Gordon’s  current  savings  account  
cover  this.     is  at  $145  which  is  quite  low.  In  order  to  
  demonstrate  ad  showcase  that  he  is  
Additionally,  Gordons  loan  is   fianicaly  responsible  he  could  consider  
deemed  as  a  Non-­‐Desirable   contributing  regularly  to  his  savings  
loan.  This  is  due  to  the  fact   account.  If  he  is  able  to  show  that  he  can  
that  Gordon’s  debt  servicing   save  a  set  amount  of  money  consistency,  
threshold  is  exceeded  by  his   this  demonstrates  that  he  is  likely  to  be  
debt  and  rental  obligations;   able  to  manage  regular  loan  repayments.  
the  loan  cannot  be  repaid      
within  a  reasonable  period  
except  by  liquidating  the  
assets  or  borrowing  
elsewhere.    In  order  to  
substantiate  his  outstanding  
debt,  Gordon  mist  liquidaite  
his  assets,  in  this  case  his  car  
which  is  valued  at  $25,800.  
 
It  is  also  worth  mentioning  
that  as  this  is  an  unsecured  
loan,  Student  Bank  has  not  
been  assured  or  pledged  with  
any  collateral  by  Gordon  in  
the  event  that  he  defaults  on  
his  loan.  
 
Thus,  due  to  the  damning  
evidence  listed  above  
Gordons  loan  application  for  
the  new  TV  system  should  be  
rejected.