Oran Room | Prepackaged Loans and Distressed Borrowers | Business


I have often wondered why I hear from so many people who are deeply and desperately troubled because they are drowning in debt, seemingly hopeless. Credit card debt is a big deal, but this discussion is not about it.

I decided to take a look at the phone book under “Loans” and found that there are several lenders out there, including smaller and well-known traditional financial institutions and some lesser ones. known offering a wide range of loans. This made me wonder if there is a correlation between the relative ease of borrowing and the challenges of servicing debt.

Offers are attractively presented with enticing language, like a suitor calling. Loans are described as affordable, easy, accessible, hassle-free with convenient and flexible repayment plans. Some loans are unsecured and the rates are rated as attractive. The emphasis is on rapid processing and disbursement. The loans are also tailor-made.

What are some of the main purposes for which institutions lend, and does the focus of their lending give an indication of the main purposes to which borrowers spend the borrowed funds?

Here are some of the types of loans that seem to be the most common: auto repairs and insurance, personal loans, auto loans. There are also business loans, primarily for small businesses, student loans, home improvement loans, and mortgages. Back-to-school loans, medical bills, debt consolidation loans, and emergency loans are less common. Interestingly, there are loans for utility bills, vacations, and “general purpose”.

There are same day loans, payday advances, loans for special groups like teachers, police officers, civil servants, nurses, carriers, who no doubt must feel special enough to have a facility. designed for them.

Financial companies active in the lending industry do what they were created to do: lend. I have no doubt that many borrowers are doing good service on their debts and lenders are doing well, otherwise they would have closed their doors. But some borrowers appear to be in distress.

What interests me are the reasons why some people borrow. I’m not in a position to say what proportion of these loans is for what purpose or what the repayment record is, but I’m wondering if people’s priorities are in the right place.

Loans for business, education, home buying and home improvement are strong. These are investment activities with long-term benefits. Business and education offer prospects for improving well-being in the long term, if not in the relatively short term.

Borrowing for Debt Consolidation suggests borrowing to deal with a situation that has become difficult, or that the borrower has assessed the situation and considers a loan to be cheaper and easier to manage.

But it seems that a lot of people drive motor vehicles that put them under pressure. Maybe they own a car out of necessity but their pockets can’t handle the maintenance and premiums. This may reflect a failure to plan well, including planning how to spend.

As “personal loans” are not described, this could be a very broad category covering many different and varied activities. The most troubling part for me, however, is borrowing for utility bills, for the holidays, and for Christmas. For the latter two, the borrower would have fully benefited from spending the borrowed funds long before the loan was repaid.

The fact that so many lenders are offering payday loans suggests that many people are having cash flow issues. Is it about not spending prudently, or is the earned income so insufficient?

What is clear from what some struggling borrowers have said in their requests for help from Finviser is that they did not understand what they were doing when they took on debt. And in many cases, people have borrowed without understanding or even being aware of the consequences of not servicing their debt satisfactorily. Others have encountered difficulties due to the emergence of unforeseen adverse circumstances.

Although financial institutions are very keen on lending and facilitating borrowing, it is incumbent on potential borrowers to weigh very carefully the cost of borrowing, whether it is absolutely necessary to borrow and whether they can truly afford to borrow. ‘to borrow.

There is a time and place to borrow – and sometimes it is necessary to borrow – but better management of resources and expectations, along with a willingness to be patient and to make sacrifices, can help alleviate the need. perceived to borrow.

Oran A. Hall, author of “Understanding Investments” and lead author of “The Handbook of Personal Financial Planning” offers personal financial planning advice and [email protected]

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