The Impact of Debt Relief Order on the Demand of Short-Term Loans - Research Proposal Example

Word count 672 words (excluding and references) The impact of DRO on the demand of short-term loans with very high interest rates The emancipation of DRO (Debt Relief Order) in the UK would be a potential issue to be learned about especially from the point of view of creditors which have great role in the market economy. In addition, this study should be carried out because DRO is simply another related financial matter in the UK that has to be studied thoroughly in order to help the government to gain significant insights concerning the implementation of effective and efficient people’s debt management programs. This study will investigate whether the perceptions on DRO have significant impacts on the revenue of creditors especially those who have potential profit in offering short-term loans with high interest rates. Knowing any potential impact would further lead to the investigation on how creditors would create any important accounting-related adjustments just to be able to ensure survival of their business. Thus, the following questions will be answered at the end of the study. 1. What is the actual level or amount of short-term loans at high interest rates offered by credit companies after the implementation of DRO? 2. What are the perceptions of the debtors on DRO and its implementation? 3. What are the perceptions of the creditors on DRO and its implementation? 4. What are important adjustments created by the lenders in response to DRO? This study will employ both quantitative and qualitative method of research through a survey questionnaire and personal interview. In the end, this study will lead to understanding the micro-level impact of DRO on lending and banking institution, and increasing the knowledge on the specific probable moves of banks and lenders to maximise their revenue on short-term loans amidst the implementation of DRO. Keywords: DRO, insolvency, debt management Introduction Purpose The purpose of this research is to investigate whether the perceptions on Debt Relief Order (DRO) have significant impacts on the revenue of creditors especially those who have potential profit in offering short-term loans with high interest rates. Knowing any potential impact would further lead to the investigation on how creditors would create any important accounting-related adjustments just to be able to ensure survival of their business. Background information One of the ways in order to protect an individual or a company from exact financial obligation from creditors is to file bankruptcy (Elias, 2011). This is a way of doing something to secure any form of financial obligations that could no longer be handled accordingly. However, in any way this is also a remarkable opportunity to actually create a fresh start when it comes to financial concern of an individual or organization. On the other hand, this also has a remarkable impact on the part of the creditors. Although, individuals who are in financial trouble may actually find it hard to secure financial support in the future for not being able to pay any accounts payable, insolvency on their part could create at some point some significant adjustments on the part of the creditors (Newton, 2009; Sarra, 2003). Today, aside from bankruptcy, there is another alternative especially for young people in order to secure themselves from creditors. In the UK, the DRO would allow an individual to secure one’s self from financial obligations towards a creditor. Those who could avail this should only have less than £15,000 value of debt and a saving which would not exceed £300. As a result, many people in the UK are now seeking protection from DRO, as an upshot of unmanaged financial spending from the past especially in times of holiday seasons. Most of these young people, aged 25 to 34 decided to avail short-term loans at high interest rates, which in the future would lead them to financial snags (BBC, 2011). As a result, they would end up seeking protection from debt management companies in the hope to help them manage their financial obligations to a creditor. In the birth of DRO there is hope among those people who are intensely indebted and are no longer able to pay their lenders. However, from the point of view of creditors, there must be a great impact on their part especially on their offered short-term loans with high interest rates. If so, it is of great interest to know how creditors would create any possible adjustment just to be able to ensure survival of their business. Rationale In line with finding whether there is a potential impact of DRO on the creditors’ offered short-term loans with high interest rates that would further result to any significant adjustment, the proponent believes that this study should be carried out due to the following reasons. Short-term loans are mostly considered especially in Christmas holiday (BBC, 2011). At this point, potential debtors would plunge right away on short-term loans amidst high interest rates that are associated with them. This is indeed a significant source of income among creditors offering short-term loans due to high interest rates. In line with this, the emancipation of DRO in the UK would be a potential issue to be learned about especially from the point of view of creditors which have great role in the market economy. In addition, this study should be carried out because DRO is simply another related financial matter in the UK that has to be studied thoroughly in order to help the government to gain significant insights concerning the implementation of effective and efficient people’s debt management programs. Objectives of the research Based on the purpose to investigate whether the perceptions on Debt Relief Order (DRO) have significant impacts on the revenue of creditors especially those who have potential profit in offering short-term loans with high interest rates, the following specific objectives will be addressed at the end of the study. 5. What is the actual level or amount of short-term loans at high interest rates offered by credit companies after the implementation of DRO? 6. What are the perceptions of the debtors on DRO and its implementation? 7. What are the perceptions of the creditors on DRO and its implementation? 8. What are important adjustments created by the lenders in response to DRO? Hypothesis There would be a significant association between the amount of short-term loans and the perceptions of the debtors and the creditors on the implementation of DRO in the UK. Variables The dependent variable for this study would be the actual level or amount of short-term loans at high interest rates offered by credit companies right after the implementation of DRO. The independent variables would be the perceptions of the borrowers and the creditors on the DRO and its implementation. Limitations The data and information to be obtained for this study will solely depend on the information provided by the chosen credit companies and the borrowers. The availability of chosen respondents will depend on the respond that will be received by the proponent from a letter of request prior to the data gathering. Preliminary survey of literature Short-term loans in the UK People in the UK know that time is hard, but amidst of this, short-term debt continues to arise as an upshot of maximising short-term loans, which the bottom line has benefited the small groups which are lending short-term debt (Thomas and Dorling, 2011, p.1). What is so sad about this is that these short-term debts or loans have higher interest rates which generally contributed to the advantage of the lending groups at the expense of the borrowers. In 2008, short-term debts were popular among households with the least income (Thomas and Dorling, 2011, p.1). There is a risk when the proportion of short-term finance debt rises (Heffernan, 2005, p.410). This substantially would create a relatively small value for assets. For instance, as the number of borrowers who could not pay would rise, banks or lenders would be forced to accept the collaterals. In a way, collaterals are made in a form of assets. At this point, banks would suffer concerning the issue of liquidity as the acquired assets may substantially decline in value. This is indeed a potential threat to lender’s ongoing operation. DRO As stated earlier, banks or lenders may potentially face threat when borrowers would no longer be able to pay despite the fact that collaterals can serve as their alternative payment options. This can only be true if there is increase in debts not paid in cash but rather through collaterals in a form of asset. This asset may substantially decline due to the increase of their availability that would also decrease their actual market value, eventually affecting the lenders financial liquidity. The debt relief order (DRO) is a significant way to aid borrowers who could no longer pay their financial obligations to the money lenders or creditors. In any way, there is a positive side about it. Its increase in the UK only shows that young people having small income, below £15,000 debt and savings £300 or less, are making ways in order to address their existing financial problems (BBC, 2011). However, there is quite a potential threat when people consistently declared insolvency. People declaring insolvent in 2011 may be down by 11 percent but the point of its increase may have potentially resulted to the number of firms smashed which increased by around 1.3 percent compared in 2010 (BBC, 2012). On the other hand, as another form of insolvency especially for lower level of debts, DRO, continues to rise by around 15 percent compared in 2011 (BBC, 2012). Methodology The proponent will use combined quantitative and qualitative methods in this study. Under the mixed methods, there is an intuitive appeal that the combined strengths of qualitative and quantitative method will be maximised (Tashakkori and Teddliep, 2003, p.634). This potentially has become important theoretical foundation of the proponent in choosing combined quantitative and qualitative method in research. The technique to be used in the data collection is a questionnaire and personal interview. This should be the case knowing that the target respondents may have hectic schedules so the proponent will choose to design technique in the data collection that will not incur too much time on the part of those people to be chosen to respond to this study. The proponent will have this proposal approved by the supervisor prior to the implementation of actual data gathering. After the approval, a letter of request signed by the proponent and the supervisor will be furnished to the chosen respondents. The respondents will be randomly chosen in order to give equal chance for the whole population sample. The proponent will randomly choose at least 10 percent of the money lenders or banks in the UK offering short-term loans. The respective person in each chosen bank or lender with substantial information about the issue that will be investigated in this study will be given the questionnaire and personal interview. After this, the proponent will randomly choose borrowers aged 25 to 34 within the chosen bank or lending organisation and provide them with a questionnaire. To analyse the data, the proponent will encode all the responses especially the data on how creditors would create any important accounting-related adjustments just to be able to ensure survival of their business in the midst of DRO implementation. A multiple linear regression and correlation analysis will be used in order to find out relevant association between the amount of short-term loans and the perceptions of the debtors (aged 25 to 34) and the creditors on the implementation of DRO in the UK. Results and conclusion This research will lead to certain valuable findings. Therefore, the expected significance of research results include understanding the micro-level impact of DRO on lending and banking institution, and increasing the knowledge on the specific probable moves of banks and lenders to maximise their revenue on short-term loans amidst the implementation of DRO. References BBC (2011) Debt experts issue help warning. [Online]. Available from: http://www.bbc.co.uk/news/business-16345896 [Accessed: 3 May 2012]. BBC (2012) Personal insolvencies’ down 11% in 2011. [Online]. Available from: http://www.bbc.co.uk/news/business-16868567 [Accessed: 3 May 2012]. Elias, S. (2011) The New Bankruptcy: Will It Work for You?. 4th ed. Berkeley, CA: Nolo. Heffernan, S. (2005) Modern Banking. 2nd ed. West Sussex: John Wiley & Sons. Newton, G. W. (2009) Bankruptcy and Insolvency Accounting, Practice and Procedure. 7th ed. Hoboken, NJ: John Wiley & Sons. Sarra, J. P. (2003) Creditor Rights and the Public Interest: Restructuring Insolvent Corporations. London: University of Toronto Press. Tashakkori, A., and Teddlie, C. (2003) Handbook of Mixed Methods in Social & Behavioral Research. Thousand Oaks, CA: SAGE. Tomas, B., and Dorling, D. (2011) Bankrupt Britain: An Atlas of Social Change. Bristol: The Policy Press. Read More