The lender will verify the proof of income:

• The last three payslips and the P60, if employed.
• Two or three years of audited accounts, if self-employed.

The lender would also verify other documents that prove the borrowers identity – the passport and proof of address.

The lender will arrange a property valuation to check the property’s worth. Many lenders offer up to 90 or even 95 per cent of the valuation, if they are sure of the borrower’s ability to repay. This is called ‘loan to value’ or LTV. Maximum LTV rates typically reduce for properties above a certain value – these thresholds vary between lenders.

Mortgage lenders use different rules to work out how much they can lend. For example, some of the business rules can be:

• Single Applicant – Three times the borrowers annual salary – sometimes more
• Joint Applicants – Two and a half times the joint salaries, or three times the  higher salary plus the lower salary.

Lenders base their loans on the borrower’s gross income before tax. This can sometimes include regular overtime or commission. They also look at the regular outgoings (expenses), like:

• Payments on other loans
• Service charges on the property
• School fees for children

An ‘agreement in principle’ is an agreement from a mortgage lender that in principle they will lend the buyer a specified sum for property purchase, on the condition that the property is adequate security for the mortgage and provided that the buyer is able to verify the income and satisfy any other conditions.  The lender normally collects basic information from the prospective borrower and runs a credit check / credit reference check before providing an agreement in principle to the buyer.

The buyer can get a ‘decision in principle’ (DIP) from a lender even before choosing the final property. The ‘Decision in Principle’ shows whether the lender is prepared to lend and how much they are willing to lend. The decision is based on information the prospective borrower gives regarding:

• The income

• The employment status

• The  type of property the borrower wants to buy

An agreement in principle is not binding on either party. Even if the buyer gets an agreement in principle, he / she is not under any obligation to apply to that lender or take out a mortgage with them.

Creditor:  A creditor is a person or organisation which extends credit to others. Typically, creditors are banks, insurers or other financial institutions who provide loans for the purpose of real estate purchase.

The creditor has legal rights to the debt, secured by the mortgage and provides a loan to the debtor for purchase of the property.

A creditor is sometimes referred to as the mortgagee or lender.

Debtor:  A debtor is an individual or company that owes debt to another individual or company (the creditor), as a result of borrowing.

Typically the debtors will be the individual home-owners, landlords or businesses who are purchasing their property by availing a loan.

The debtor or debtors must meet the requirements of the mortgage conditions (and often the loan conditions) imposed by the creditor in order to avoid the creditor enacting provisions of the mortgage to recover the debt.

A debtor is sometimes referred to as the mortgagor, borrower, or obligor.

If your bank account regularly goes over your arranged overdraft limit, you will have to pay extra interest and charges. Your bank could also cancel your overdraft limit or refuse to renew it when your agreement runs out. If you lose control of your bank account, it can become very difficult to manage your business and household finances.

Unpaid cheques, direct debits and standing orders will make your debt problem worse and any money paid into your bank account may be taken up by interest and bank charges instead of covering payments you need to make. You may find it easier to change your overdraft into a loan. Remember, you may lose your overdraft as the bank will often make it a condition of the loan that you keep your current account in credit. You will also be committed to making payments towards the loan each month. Make sure you can afford this and make sure the interest rate on your new loan is no higher than the overdraft rate was.

Leases for hiring equipment may be priority or secondary debts, depending on your circumstances.

Check the agreement very carefully to see whether:

• you have the right to keep the equipment at the end of the lease; and

• if you will have to pay for the equipment for all of the period set out in the agreement whether you return it or not.

Under lease-hire agreements, the company which supplied the goods will always own the goods and will be responsible for repairs. Under lease-purchase agreements, if you pay a fee at the end of the leasing period, you will then own the equipment. Check with the leasing company if they will reduce your debt if you return the equipment. If you have the right to keep the equipment, or if you need the equipment to keep trading, you should treat the missed payments as a priority debt.

we present analysis of individual-level data from one large payday lender that begins to explain how astronomical loan interest rates can coexist with more pedestrian firm-level return on equity.

The individual data reveal that loans are small, yielding interest payments of only $49 on average; loss ratios of about 5% per loan immediately consume over 1=4 of interest income; and net financial returns interest payments less loan defaults amount in expectation over all of the marginal borrower’s loans to only about $100.

These data are consistent with the interpretation that payday lenders in a competitive market face per-loan and per-store fixed costs that are large relative to the interest earnings on their small loans. Third, we contextualize our findings in relation to a small but excellent and rapidly growing literature on the supply side of the payday loan industry.