The PARTS Bank Lending Framework Illustration

Apply the the 3Cs to the example described

Example 1: Car loan -  Penelope Lane

Penelope is a new customer, aged 23, and has come in for an interview. She wishes to buy a car for £4000 over 2 years and £1,000 will be provided from savings, and her parents are going to pay the insurance of £750. She has a student loan of £15,000, and plans to start repaying that when the required earnings level kicks in. Her starting salary is £23,000 at a local Accountancy firm and she is living in rented accommodation.

• Character - Based on the interview and the reference from her new employer, character appears good, since she is new to the bank, you would want to get a credit reference from her current bankers.
• Capability - She has a good degree and job. The accountancy firm has an excellent reputation locally. It is early to assess financial capability, but she has already saved up a deposit for the car.
• Capital - This is a relatively modest car loan and she is 23, and only just starting her career, so you are not expecting her to have built up too much capital. The absence of other debts - apart from the student loan - and the fact she is making a contribution to the car purchase along with some evidence of parental support in the background, is all very encouraging.

So, Penelope has scored well in the three C’s analysis.

Apply the PARTS model to the example, to assess Penelope’s creditworthiness

• Purpose - Purpose is entirely reasonable - car loans are part of your core lending business.
• Amount - Amount is not excessive, it is in line with what you would expect and she is making a contribution.
• Repayment - When discussing repayment, in the interview, you went through an income and expenditure exercise to establish affordability - she has saved up a contribution and her income is more than enough to service the repayments.
• Term(s) - The duration of the loan is standard and acceptable and whilst the car will depreciate in value, it should have a useful life well beyond the expiry of the borrowing.
• Security - Security does not apply to short dated personal loans and there are no regulatory or identity complications here.

Penelope, despite being a new customer, has satisfied the PARTS criteria - so the loan can be agreed - subject to a satisfactory reference from her former bankers.

Apply the the 3Cs to the example described

Example 2: Loan for a holiday - William Hunt

William, aged 33, is an existing customer. He has recently been involved in a work related accident for which he is due compensation - his solicitor has said the settlement could be as much as £20,000. He wishes to borrow £2,000 toward the cost of a £3,000 holiday, which he hopes to take in one months time. He proposes to pay the loan off once he gets the compensation he is due, but he has asked for a 6 month loan in case this takes longer to come through. The £1,000 contribution is being paid by his grandfather. His account has been trouble free, albeit low activity and a low current balance.

• Character - Edward was very open and friendly in the interview and said his employer would write a letter of reference if needed confirming he will be paid sick pay, whilst absent from work.
• Capability - Edward appears good at what he does, and has been very rarely out of work, so ticks the box for occupational capability albeit with a question mark about when he will be able to resume work and full earnings. Financial capability is in question - Edward does not have any debts other than the lease commitments of his high-end car, but equally has no savings.
• Capital - By the age of 33, it is not unreasonable to expect some savings given what he has been earning, but at least the only debt is related to his car.

Edward has a mixed rating in the three Cs.

Apply the PARTS model to the example, to assess Edward’s creditworthiness

• Purpose - Loans for holidays are not great and really he should not be anticipating the claim coming in. Claims such as these are never certain in terms of success, amount or timing. So, purpose is immediately very questionable.
• Amount - The amount is also relatively high for a holiday - and whilst a contribution is being made, it is from his grandfather and it is not clear from the interview whether this is expected to be repaid.
• Repayment - Edward’s ability to achieve repayment from earnings in the short term is highly questionable.
• Term(s) - A fall-back position of a 2 year loan for a holiday - is not good. Discussion of terms and conditions would only be appropriate if this was a better proposition.
• Security - Security is not relevant as this is a consumer loan and fundamentally there is little merit in the proposal, so security should not be considered. Some lenders might explore taking a guarantee from the grandfather, but this would not be appropriate for a reputable bank.

The PARTS analysis shows that this proposition does not stand up at all.