Loans can be described as money which is given to a borrower on an agreement basis with the debtor and the creditor. It is upon the financial institution to come in and determine the truth behind the reasons presented for the loan. After making a judgement on the reasons presented for the loan the financial institution then decides whether to give the loan or not. The financial institution should already have made known to the borrower their terms and conditions governing the whole process upon which the determination is then made. Bad credit history is exhibited by ones financial history and which should be considered before the financial institution accepts to be involved with the current borrower. The borrower who is seen to have cleared all previous loans on time is seen to be in a better position to clear the loans on time. When a borrower has no credit record an assessment is done on the duration with which they make their deposits currently.
Poor financial planning results in bad debts. When a borrower is not able to budget well on the loan money they get they end up investing it wrongly which means they will most likely not get the expected results of profit from it. If the results of the investment are not as expected and the profits much minimal then it also becomes tiresome to settle the debt. Before giving a loan the financial institution should have gone through the intended use of the money to know whether it will give any returns.
Any financial institution about to give a loan should be in a position to ensure there is proper security presented for it. There have been cases of dishonest persons who have in the past given a wrong record of their security to get a loan. The results of such cases is that in case of failure to repay the loan within the required time frame the bank has nothing to refer to as their security. Trustees presented should have a proper financial record and ability. Trustees are defined as persons who are in a position to come in and help settle a loan in case the borrower is not able to. These trustees should therefore meet all the legal requirements before being accepted here.
There are financial institutions which can be termed as developing. This is based on their ability to handle major credits. The size of their capital base is still small and hence they are not in a position to withstand delayed payments for too long. A closer look is demanded when handling the borrowers in order to evade bad debts.