Here you can read a little about why we say that we must have security in housing. It is about us taking a risk, in the same way as when ordinary banks grant mortgages.
There can be many different reasons why people get into too much debt and need help to clear it.
Some people have been unfortunate enough to find themselves in a situation where they have to choose a short-term and easy solution to move on. These can be life events such as serious illness, divorce or unexpected unemployment.
Others have made choices without thinking too much about the consequences. They may have renovated their home, gone on holiday, or bought expensive things and paid for them with credit cards or consumer loans. Without a long-term plan for how these will be paid back, this can lead to payment problems.
The credit card company or consumer credit bank providing such financing may or may not have made a good or bad assessment of the customer's ability to repay. This type of financing is done without security in real estate. The lender trusts that the customer will repay the loan, and the loan is personally liable to the borrower.
When you take out debt or credit, it must be repaid. When you fail to do so, there are consequences. Very few banks are willing to refinance the unsecured debt of a person who has already shown that he or she is unable to pay. The credit card company, or the consumer credit bank that originally granted such a loan, must therefore ensure repayment itself.
For those who own real estate (or have someone who can help with such security), this can make a bank considering refinancing more confident that the customer can and will repay. When a bank then refinances expensive credit card or consumer loan debt with a mortgage, it is possible to create a better solution for the customer. The interest rate is lower than what they were paying before and monthly expenses go down. However, the interest rate is still higher than with a regular mortgage bank. Because it is a considerable job to clear up many payment remarks and debt collection. In addition, the customer has a much higher probability of still not being able to pay, compared to regular mortgage customers.
This is why we at Kraft Bank want real estate collateral for our loans.
Kraft Bank also has higher interest rates. Because of this, we want our customers to recover as quickly as possible. Then they can move back into a normal mortgage bank with normal interest rates.
Because it is best for the customer.
Do you have a lot of debt that you are unable to repay and you do not own real estate? Then public solutions have been established by debt settlement which allows debts to be cancelled after a set period of strict financial management.
This article is part of the Financial First Aid category, a collection of articles dealing with topics related to a strained financial situation, such as reminders and debt collection, late payments, distraints and foreclosures. Read more about Financial First Aid.