Showing papers on "Credit risk published in 1976"

Consumer Perceptions of the Consumer Credit Process

Abstract: This research contrasts the perceptions of consumers with those of loan officers faced with similar credit application situations. Fundamental misperceptions of the credit granting process are encountered. Consumers clearly misperceive the credit standards of both banks and finance companies. Given large interest rate differentials between loan sources and the narrow shopping scope of most consumers for consumer credit, equitable allocation of credit dollars demands greater appreciation of the nature of the credit evaluation process by lender and borrower.

Consumer credit and consumer demand for automobiles

Abstract: No aggregate time series data are available for all three credit terms: the downpayment percent, the finance charge, and the length of contract. It is the interaction of these terms which determine the price of using credit to purchase an automobile. Being forced to deal specifically with one of the terms of credit, some time should be given to the development of a model to indicate how the maturity and the cost of funds to credit institutions are related. We present here a simple model which indicates that such a relationship exists. Our model is developed in terms of a single credit institution which attempts to maximize profits on a credit contract currently being negotiated. The revenue is considered to be the interest income generated over the life of the contract, and may be expressed as follows: I= M 1(rB112)

Formal Vis-à-vis Informal Credit Supply Sources in Tribal Areas: A Case of Dharampur Taluka

Abstract: The informal credit suppliers give credit both in cash and grain, and for any purpose. They recover credit either in cash or grain or labor. Such terms and conditions suit most to the credit users whose demand for subsistence credit is acute and who have extremely limited and even stagnant opportunities to develop their economic activities in agriculture and forests. Under such conditions, the stereotyped functions of formal credit suppliers prove thoroughly inadequate. They can rarely meet the implicit policy objective of substituting an informal credit supply source. The credit source substitution process is a decision making process of the borrowers. And it is influenced by the incremental gains perceived by them. Incremental gains are defined as opportunity gains expected to be realized as a result of substitution of one source of credit for the other. Conversely, incremental losses are defined as opportunity gains expected to be lost in this process. Under the existing terms and conditions of the two types of credit sources, the incremental gains and losses are basically affected by (a) availability of an access to grain markets, (b) availability of employment, (c) interest rates, (d) grain prices, and (e) wage rates. If interest rates alone were relevant, a family would perceive an incremental benefit of Rs. 13 on every Rs. 100 borrowed from a cooperative instead of from a trade-cum-landowner, assuming interest rates of 12% and 25% respectively. However, the other factors particularly (a) and (b), have such a dominating influence that this gain would be wiped out and the family would tend not to substitute cooperative credit for moneylender credit.

Numerical Points Systems in Credit Screening

Abstract: The development of numerical points systems, or credit scoring systems, have become increasingly important in this country as aids in the credit screening process. Most of the initial research on these techniques has been undertaken in the US, but in the last decade the principles have been used in this country, particularly by financial institutions operating in the consumer credit field. In broad terms, numerical points systems attempt to discriminate potentially bad from potentially good credit risks and offer an alternative to a purely subjective assessment of a credit applicant. The systems are particularly relevant in the consumer credit field where most of the information needed can be obtained from a credit application form. Under the system, numerical weights are assigned to certain types of information given (e.g. occupation, income, marital status, etc.), the total of the scores then being used as a measure of payment potential: the higher the score, the more likely is the applicant to possess characteristics which indicate a prompt payment disposition. In this article, it is emphasised that the construction of a numerical points system fits into the overall credit screening process, and it is important to appreciate the principles of the latter before full use can be made of any system. The empirical research is summarised both in the US and in the UK with a view to assessing the effectiveness of the systems, and a survey amongst UK financial institutions is also summarised to evaluate the extent of the use of the techniques in the UK. Emphasis throughout has been placed on the consumer credit field but the principles can also be applied to trade credit.