Report on Credit Analysis of Mathilda and Sebastian

Introduction of The Credit Analysis of Mathilda and Sebastian

The aim of this report is to provide deep insights regarding consumer credit analysis. The credit analysis of Mathilda and Sebastian have been performed to know whether providing loan to the couple is a rational decision or not. A Complete Credit Analysis has been performed to know the creditworthiness of the couple.

Case Overview of The Credit Analysis of Mathilda and Sebastian

Mathilda and Sebastian are living at their current address for the past seven years. The values of their house 7 years ago were $450,000 which has become $600,000 today. Mathilda works in an organization as a manager and earns gross income of $10500. Sebastian is also a manager in another corporation and earns an income of $15500. The couple owns an old car, which is not sufficient for both of them. The couple has decided to purchase a new car however the couple currently does not have much money to purchase the car.

Therefore the couple has decided to request a loan from a local bank. The amount of loan which the couple wants to get from the local bank is $30,000. After submitting the request for loan the bank has decided to analyses the creditworthiness of the couple to understand whether couple is in the position to pay back the loan or not. A detailed credit analysis has been performed by the bank to understand the net worth of the couple.

Case Analysis of The Credit Analysis of Mathilda and Sebastian

Table 1: Net worth Evaluation

It is highly essential for the credit provider to analyze the financial position of the individuals to whom the loan is going to be provided. For critical credit analysis, the first thing that should be done is to evaluate the net worth of the individuals. The net worth provides a brief overview of the financial strength of the individuals. In the above table the net worth of Sebastian & Mathilda is conducted. Mathilda and Sebastian purchase there housed 7 years ago. At that time the value of their house was $450,000. With the passage of time the value of the house grown and today it values at $600,000. Currently Mathilda & Sebastian own an old car having value of 15,000 (Jonathan, 2010).

In their transaction account, they have total amount of $10,000. However in TFSA account Mathilda has $25000, and Sebastian has 35000 which makes a total of 60,000. Sebastian retirement saving plan has a value of 40,000 whereas Mathilda has only invested 10,000 in the retirement plan. In the above table it can be seen that the total assets of Mathilda and Sebastian are $747000. The key liabilities which the couple has tom pay include line of credit, student loan and Credit card payment. The couple have to pay $10,000 in terms of line credit. Sebastian has current liability regarding the credit card worth of $5000. Mathilda, however, has the liability regarding the student loan worth $20,000. The total current liabilities of the couple values at $35000. The total liabilities of the couple valued at $285000. After evaluating the total assets and total liabilities of the couple the net worth of the couple can be easily evaluated. The formula for calculating net worth is mentioned as follow:

The net worth of the couple is $462000. The net worth of the couple indicates that the value of the assets which the couple possesses is more than the liabilities of the couple. In other words it can be said that the couple have sufficient amount of resources to pay back the loan (Jonathan, 2010).

Table 2: Credit Bureau File-Sebastian

The above table is providing brief detail about the loans which Sebastian have taken from different organizations. In the credit bureau file, the credit card loan and mortgage loan can be clearly seen (Durkin, Elliehausen, Staten, & Zywicki, 2014).

Table 3: Credit Bureau File-Mathilda

 The above table is providing brief detail about the loans which Mathilda have taken from different organizations. In the credit bureau file Line of credit loan and mortgage loan can be clearly seen (Durkin, Elliehausen, Staten, & Zywicki, 2014).

Table 4: TDSR Evaluation-Excluding Loan

 In the above table, the Total Debt to Service Ratio (TDSR) has been calculated. The formula of TDSR is mentioned as follows:

The TDSR ratio of the couple is 0.44 or 44%. The TDSR ratio should be equal to 60% or below 60%. Here it can be seen that the TDSR ratio of the couple is lower than 60%, which means that the couple is in the position to pay back its loan, and the credit provider can think about providing loans to the couple. The debt obligation of Mathilda and Sebastian is lower than their income (Durkin, Elliehausen, Staten, & Zywicki, 2014).

Table 5: TDSR Evaluation-Including Loan

 In the above table, the TDSR ratio is evaluated including the amount of loan which has to be taken for the purchase of new car. fter including the amount of car loan the TDSR ratio of the couple becomes 0.45 or 45%. The TDSR ratio should be equal to 60% or below 60% as discussed earlier. Therefore it can be said that the TDSR ratio of the couple is lower than 60%, which means that the couple is in the position to pay back its loan, and the credit provider can think about providing loans to the couple. The debt obligation of Mathilda and Sebastian is lower than their income (Grier, 2007).

Final Recommendation of The Credit Analysis of Mathilda and Sebastian

After performing a complete credit analysis of the couple it can be said that the couple is in the position to pay back their loan easily. TDSR ratio and the net worth of the couple indicates that the couple can pay back the loan and have sufficient resources. The credit analysis has been performed by keeping the 5 Cs of credit in mind which includes:

·         Capacity

·         Character

·         Capital

·         Condition

·         Collateral

The couple not only have sufficient capacity but also have a significant amount of capital. Therefore it is recommended that the bank should grant loan to Mathilda & Sebastian.

Conclusion of The Credit Analysis of Mathilda and Sebastian

If all the above credit analysis is summarized, then it can be said that the TDSR ratio of the couple is 0.44 or 44%. The TDSR ratio should be equal to 60% or below 60%. After performing complete credit analysis of the couple it can be said that the couple is in the position to pay back their loan easily. TDSR ratio and the net worth of the couple indicates that the couple can pay back the loan and have sufficient resources.

References of The Credit Analysis of Mathilda and Sebastian

Durkin, T. A., Elliehausen, G. E., Staten, M. E., & Zywicki, T. J. (2014). Consumer Credit and the American Economy. Oxford University Press.

Grier, W. A. (2007). Credit Analysis of Financial Institutions. Euromoney Books.

Jonathan, B. (2010). Financial Management. Pearson Education, India.