Chapter 6: Credit and Consumer Lending Flashcards
what are the 4 C’s of credit
character, capacity, callateral, capital
the integrity of the bprrower is paramount which is why interviews and disscussions with them are so important - what Cof credit doe this refer to?
Character
Refers to the borrowers ability to repay the loan - what C or credit does this refer to?
Capacity
refers to the assets being provided to secure the loan. It is typically required as a way to reduce the lenders risk. - what C of credit does this refer to?
Collateral
theThe amount of ……, is often refered to as the deposit of equity provided by the customer can indicate their commitmment to the purpose of the loan
Capital
what is a customers net worth
the difference between their total assets and total liabilities
under CCCFA 2003 lenders can harge various fees , however these must be reasonable and the lender must have told the consumer about them at the outset of the contract. If a fee is unreasonable what can be done
an application can be made to the district court to have it reduced or cancelled
when the NZ courts are deciding whether a credit fee or default fee is reasonable what rules apply to establishment fees
Establishment fees should generally be no more than the lenders reasonable costs in setting up the credit contract, processing the application, documentation and advancing the credit
when the NZ courts are deciding whether a credit fee or default fee is reasonable what rules apply to break fees
teh CCCFA refers these a ‘prepayment fees’ and cannot be ore than a reasonable estimate of the lenders loss resulting from the early repayment
when the NZ courts are deciding whether a credit fee or default fee is reasonable what rules apply to default fees
these fees should generally be no more than is needed to “reasonably” compensate the lender for any costs or losses they incurred because of the default
when the NZ courts are deciding whether a credit fee or default fee is reasonable what rules apply to Thrid party fees
lenders can pass on any fees they have been charged by others in relation to the credit contract such as a credit check. iThe lender cannot mark up these fees.
from april 2021 lenders are required to keep records to substantiate how each credit and default fee is calculated and demonstrate that it was not unreasonable at the time it was calculated or reviewed, according to which piece of legislation
The credit contracts legislation Amendment Act 2019
The RBNZ (MPC) meets seven times a year to decide amongst other things, whether to change the Official Cash Rate (OCR). What is the OCR?
The rate banks pay the reserve bank when they need to borrow money
The CCCFA does not set interest rates but states that the interest rates must not be ………. and usually interest must not be charged .. ……
- oppressive, in advance
what is the Loan to Value Ration (LVR)
it reflects the size of the borrowing compared to the value of the asset being purchased
How is LVR calculated
Loan amount /asset value *100
when calculating LVR the asset value should be the lower of ……..
of the cost of the assets or bank valuation
The LVR is a primary measure of what for bankers
risk
loans with a higher LVR, which typically means over ..%, are often viewed as having a higher risk for the lender, and to compensate fo rhtis what is normally done?
- 80%
- a higher interest rate may be applied to the borrowing. (the borrower may also be asked to provide more capital to reduce the LVR)