Ninja Loan: A Brief Overview
“NO INCOME, NO JOB, AND NO ASSET” is a very popular saying that always goes with the term NINJA LOAN (also known as NINA). The word Ninja is a nickname for a loan product of the sub-time market in the 2000s. In simple terms, Ninja loan means that a loan was given without the borrower having any intention of paying it back. Also, neither the income, job nor the assets were checked, nothing was even kept as collateral.
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Comparing the Ninja loan to a regular loan, submitting all the documents in a systematic manner is of utmost importance but before that, the person needs to have a stable job and regular flow of income. The Ninja loan was very popular prior to the 2008-2009 financial crisis. After which the US government changed the lending rules and regulations to improve the standards which included stricter rules for granting loans. For example, in the fall of Lehman Brothers in the USA during the 2008-2009 financial crisis, the primary reason was that they had given loans to people who did not have the capacity to repay it back, also proper auditing and verification were not conducted.
HOW DOES IT WORK
- The process begins with checking the credit score of the borrower without any verification of the income or assets such as income tax returns, bank or brokerage statements. The credit score needs to pass a certain threshold.
- Generally, the loans are taken through sub-prime lenders rather than a bank however, the credit score requirements will be lower than the major banks.
- The term of the loan varies from person to person. Some lenders offer a low-interest rate but it increases with time. If the borrower fails to make timely payments then the lender can take legal action against him which in turn which affects their credit score and may cause a problem in the future in terms of taking loans.
- There is lesser paperwork compared to a normal loan hence it can be processed quickly and the lender can give out more loans.
- It is an easier method for those who do not wish to show their documents.
- There is a continuous flow of cash provided that the loans are being repaid on time.
- The people who cannot get loans from banks due to their credit score are getting loans without much effort.
- The sales cost for the lender will be low since many people would have already registered due to less verification.
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- Ninja loans are very risky for the lender and borrower. For the lender, there is no collateral so in case of default there will be no asset to seize. From the borrower’s perspective, the amount taken as a loan can be much more than the capability of payment.
- As it is a quicker and effortless method, it led to the collapse of the global economy during the financial crisis of 2008-2009.
- In case of default, the entire amount is at risk and thus increasing the non-performing asset.
Giving a borrower a ninja loan is equivalent to giving a five-year-old a loaded bazooka. Ultimately in January 2014, Ninja loans were made illegal under regulation Z, which is within the Ability to Repay and Qualified Mortgage Standards ruling. This prevents creditors from making a mortgage loan unless the borrower being able to reimburse the loan.
Author – Sanjana Rau
About the author- Started my journey of self even when the odds were against me, keen observation, a cool temper, and sports worked the best for me.