What is a Credit Grantor?
The credit grantor is referred to as a person who extends or plans to extend credit to a borrower under a formal agreement.
The article tackles the following:
- Responsibilities of Credit Grantor
- Evaluation of Credit Reports
- Consumer Credit
What are the Credit Grantor’s Responsibilities?
Under the secured loan program, credit grantors or financial institutions offer convenient terms for loans. If you settle the entire loan sum, longer reimbursement time is offered and interest rate is relatively low. In Canada, financial institutions and credit grantors such as Bank of Montreal, Bank of Nova Scotia, Royal Bank of Canada, Canadian Imperial Bank of Commerce and Toronto Dominion Bank offer long term credits to individuals. Applicants have to provide certain surety against the amount of loan to acquire long-term credits. This can be worthy assets like investments, luxury car, and real property. The interest rate varies with the fluctuation of the prime rate. Credit rating is evaluated with regards to long-term credits.
What is the Evaluation of Credit Reports?
The credit grantor evaluates credit reports since these provide all the financial information about the person and ability to make repayments for any credit. You can maintain a good credit record by paying back credits on time. A good credit record or report is useful in getting loans for upgrading your businesses. Credit reports are prepared by organizations called credit bureaus. These agencies analyze your financial position and other information like sources of income, bank balance, assets and history of previous credits. These credit bureaus have a database containing financial information. The person or organization can even subscribe to a bureau and get monthly reports and monitor their status. The credit grantor gets in touch with these bureaus to obtain credit reports.
What is Consumer Credit?
The extension of credit to consumers and the resulting debt has increased steadily in recent years. Delinquent accounts are an expected stage in any enterprise. If you extend credit, you need to embark on effective recovery efforts that can help reduce losses on your part.
As a credit grantor, you need to be aware of two basic principles:
- Granting credit carries inherent risk.
- This risk can be mitigated through efficient credit and recovery policies.
Although losses to bad debt are possible, they don’t have to be excessive. Establishing and maintaining effective controls over delinquent accounts is a simple way to reduce these losses. While the information in this brochure may not solve all your payment problems, it can help soften the financial burden of bad debt.
As a credit grantor, you allow consumers to obtain goods and services now and pay for them later. While extending credit increases your sales, it also puts you at risk of some losses due to non payment.
Most businesses that “charge-off” a percentage of sales to bad debts have an established rate or procedure for this activity. This rate averages 0.5 percent to one percent on low-profit transactions and up to five percent on high-profit transactions. When your charge-off rate exceeds the limit you set, you must find ways to improve your control over losses to bad debt.
Credit grantors will make it a point to find out about your credit history whether it is positive or negative. The credit report of a person shows your past and present financial transactions, including debt that has been paid in full.