John Dickinson: Saving loans with shortfalls

A loan shortfall doesn't need to cost you or your client, the director of DebtX Mediation Services explains

It’s a common problem for a loan not to be able to proceed due to a shortfall. This can happen for a number of reasons, however poor valuations and changes to lending policy are the main culprits.  

Regardless of the reason, shortfalls can leave everyone involved in a tough spot as the broker may have spent many hours getting the transaction to this stage and the client had been relying on the new loan to get back on their feet.  This situation can result in a bitter client and they’ll often blame the broker for things not going to plan, even though it wasn’t the brokers' fault.      

Loan shortfalls can not only cost the broker a deal, but also referrals.   

The good news is there’s often a solution.

In many cases, the debts people are wishing to retire are facilities such as credit cards and personal loans that typically attract high-interest rates.  Creditors can be very fast to approve these types of loans, perhaps too fast in some cases, as they represent a high level of return.  However, given they are unsecured, these debts also represent a high level of risk to the creditor if the borrower runs into trouble and can’t maintain payments.  Due to this, a creditor will often agree to reduce an account balance to resolve what is or could be a problem account.             
     
While they would always prefer to get all their money, credit providers know that it can be better to agree to settle for less now than potentially getting even less or perhaps nothing at all later.  It’s not uncommon for people who have run out of options to move towards an insolvency or formal debt agreement.  Creditors don’t want this as it often leads to a very poor economic outcome for all concerned.

In such matters, creditors are looking for a solution and effective debt negotiation can provide that solution.

The key to effective debt negotiation is to point out why it’s a good idea for the creditor to accept less now rather than continue to push for the full balance.  Creditors are no different to any of us, if we are owed a certain amount of money and we are offered less, our first question is “why would I accept this?”  It’s this question that needs to be answered in order to have an account balance reduced.  Effective debt negotiation companies are very good at answering the “why” question which is the key to a good outcome.

Debt negotiation can even help protect a credit rating.

Let’s say that the accounts in question are in arrears and the credit provider has, or is about to commence recovery action.  Left unattended this could easily lead to a default being recorded on the borrower’s credit file.  The good news is once the credit provider has been contacted on the basis of financial hardship they are obliged to stop or not commence collection activity until the matter is resolved.  The outcome can often be not only the reduction of the debt but a preserved credit rating also.          
  
There are a number of factors that can determine how much a debt can be reduced by such as the condition of the account, the age of the debt and who the creditor is.  We see many examples of debts being reduced by 30% to 50%, sometimes more, so the savings can be significant.  In the end, it’s about relieving the creditor of a potential problem, the broker being able to complete the refinance and the borrower getting what they want.

The next time you’re faced with a loan shortfall and your client is drowning in unsecured debt, there may be an option to not only save the deal but save your client a great deal of money in the process.

DebtX is a debt mediation company focused on helping people regain financial control through the reduction and elimination of their debts.  Learn more at debtx.com.au

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