Loan pricing definition, Loan pricing factors
Loan Pricing:
Loan pricing means determining the interest rate for granting loan to creditors, be it individuals or business firms. It is one of the most important, however difficult task in lending funds to business firms & other customers. Because it is always very difficult to exactly know what the actual loan risk a particular loan application is. Generally the lender wants to charge a high enough rate to make sure that the loan will be profitable as well as it will covers enough compensation against the default risk. On the other hand loan price must be set low enough that helps the customers to find it easy for successful repayment of loan.
Loan pricing factors:
Loan pricing means determining the interest rate for granting loan to creditors, be it individuals or business firms. It is one of the most important, however difficult task in lending funds to business firms & other customers. Because it is always very difficult to exactly know what the actual loan risk a particular loan application is. Generally the lender wants to charge a high enough rate to make sure that the loan will be profitable as well as it will covers enough compensation against the default risk. On the other hand loan price must be set low enough that helps the customers to find it easy for successful repayment of loan.
Loan pricing factors:
- Amount of supply of loan giving fund (Available liquid fund)
- Cost of fund
- Administrative and transaction cost
- Other expense
- Loan supervision and collection cost
- Amount of risk of loan
- Security maintenance expense
- Anticipated dividend rate of shareholder
- competitive situation
- Demand for loan
Category: DAIBB Tutorial, Lending Operations and Risk Management, Loan Pricing, LRM Tutorial
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