A self-employed client applies for a P500,000 small business loan. His monthly income fluctuates around P50,000, but his debt payments (including credit card and car loan) total P20,000 per month. He has no collateral but offers a co-maker. How would you assess his repayment capacity?
RoleSales Representative
DifficultyDifficult
TopicTechnical
Asked at
Why This Is Asked
Business Relationship Officers need basic credit evaluation skills to screen loan applicants before endorsement. This tests your understanding of DTI, risk assessment, and practical judgment.
General Approach
Walk through your method: calculate DTI, assess income stability, evaluate the co-maker, and propose a solution that balances risk and customer need. Show you consider both numbers and qualitative factors.
General Answer
Start by calculating the debt-to-income ratio: with existing monthly debt obligations of P20,000 against stated monthly income of P50,000, the applicant already carries roughly a 40 percent DTI before the new loan; add the new loan's estimated monthly amortization to see the total DTI after approval, and compare that against the bank's acceptable threshold. Assess income stability carefully for a self-employed applicant, since income can fluctuate more than for a salaried borrower; review bank statements, business registration, and income trends over recent months rather than relying on a single stated average. Evaluate the co-maker's own capacity and creditworthiness as a secondary repayment source, since there's no collateral backing the loan. Weigh qualitative factors as well, such as how long the business has been operating and the stability of its industry. If the total DTI after the new loan looks too high, consider recommending a smaller loan amount, a longer tenor to lower the monthly payment, or requiring stronger co-maker support rather than an outright rejection. Document the full assessment, both the numbers and the qualitative factors, so the credit team has complete context for the final decision.
PH Interview Gotcha
Some might simply say 'Basta may co-maker, oks na yan' without computing ratios. That shows lack of analytical skill. Always discuss DTI, character, and possible loan restructuring.
Sample STAR Answer▾
S
Situation
As a credit evaluation intern at a cooperative, I assessed a loan application from a freelance graphic designer earning P50,000 monthly, with existing loan payments of P20,000, requesting P500,000 for new equipment.
T
Task
I had to determine if the applicant could afford the loan and recommend approval or reasonable adjustments to my supervisor.
A
Action
I computed the debt-to-income ratio: existing P20,000 plus a proposed monthly amortization of P40,000 (based on a 12-month term) would total P60,000, a 120% DTI. I interviewed the client to verify income stability and seasonal peaks. I evaluated the co-maker's finances, which added moderate strength. I proposed a counter-offer of a P250,000 loan over 18 months, reducing amortization to P20,000, for a total debt of P40,000, an 80% DTI. I also required weekly payment monitoring and a signed acknowledgement of the terms.
R
Result
The revised loan was approved, and the client made all payments on time, generating P45,000 in interest income for the cooperative. My supervisor commended my practical yet prudent analysis.
Key Takeaway
Credit evaluation requires balancing numbers with context; proposing a smaller, tailored loan can both serve the client and minimize risk.
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