We were recently working to close a commercial loan when the lender officer paused the closing. He did not want his bank to spend legal fees to clarify some tax-transfer issues (costs which the borrower also refused to cover). The legal bill would be between $2 and $3k. We asked the lending officer to calculate the legal costs versus the loan’s net present value (NPV) of income – the lender gave us a puzzled look. We quickly calculated the lifetime income of the loan versus the legal fees for the lender, and the lender proceeded to close the loan within two days.
Tag: Loan Math
There are many reasons why some customers are more debt-averse than others. Research has shown that millennials are particularly reluctant to take on debt and are also teaching their kids, Gen Z, to avoid borrowing. However, lenders need to understand how to position their loan products and provide advice for when taking a loan makes good sense for the customer.