PRLog (Press Release) –
Mar 13, 2008 – As is being reported in the news, there is an ongoing storm in the financial world; a situation where banks are wary of lending to each other and as a result, there is less money available for new debtors, a situation otherwise known as the credit crunch.
What does this mean for the ordinary consumer? To understand how this will affect the consumer in the future, it is necessary to analyse how this situation came about in the first place:
The credit crunch happened because some reckless bankers decided to take high risks in the hope of making bigger profits, they lent to people who by normal standards, could not afford to pay back the loans. Some of these loans where then sold on to other banks, thereby spreading the risk and making it difficult to trace.
The problem was realised when a large number of these mortgages defaulted and various mortgage lenders run out of money. Unable to measure the scale of the problem, banks panicked and stopped lending to each other altogether.
What it means for the consumer
Due to the fall out from the sub-prime mess, there are bound to be changes in the way banks approach borrowing, they will scrutinise those they lend to more intensely, your credit history will play an even bigger role.
This will make it especially harder for first time borrowers whether it is a mortgage, a loan or simply a credit card, without good credit history, you will find it harder to borrow.
First time home buyers will have to put up a much bigger deposit and those previously considered to have a mild credit rating will find that their only option is a bad credit loan as lenders move the goalpost.
On a positive note, we know that banks have to lend in order to stay in business, even with the tightening most consumers should still be able to get credit.
The government will have to monitor lenders more closely to ensure loans are not given to people who cannot afford them, but also to ensure that vulnerable people are not being taken advantage of by predatory lending.
In these circumstances, the best thing for a consumer to do is work on improving their credit rating and stay watchful of any mistakes that may tarnish it. This means paying down any existing debt as much as possible. If planning to buy a house, take your time and build up a sizeable deposit; the bigger the deposit, the better the chances of getting that mortgage.
