Three Options When Applying for a Loan in a Recession
In a bad economy, businesses go down, the stock market fluctuates in uncertainty and people lose their jobs
. During these times, financial institutions are also in a peril of fund shortage. Because of this, they may lack the ability to cater to everyone who applies for car loans, home equity loans, personal loans and other means when people
borrow money.
In a good and smooth running economy, banks take risks confidently on loans because debtors have stable jobs and may increase in paycheck. Business creditors also have strong chances of great profits and financial growth. But when the economy turns bad, all of these good risks go down the drain. Creditors become unable payers thus banks lose the needed money that will salvage the amount they lent. Because of this, credit falls and competition for loan approval stiffens.
Applications that have best chances of approval are those with good credit ratings, those who present security bonds, and those who accept high interest rates. Only in these ways lenders can be assured that theyll be able to get back what they have risked.
A good credit rating equates to a good reputation as this indicates that a person is a responsible borrower. It can be concluded that he probably pays on time, pays the required minimum amount, and probably doesnt max out his credit cards in a habit. Banks will render confidence in this type of applicant because of the higher certainty of credit return.
During a recession, it may seem harder to pay a loan with an unusually high interest rate but banks will want applicants who are up to the challenge. After all, its all business and banks will want to assure returns of their credit risks. Not only do people need to tighten their belts but financial institutions as well. Opting for this kind of loan is viable for people who have bad credit scores. Most often than not, this is their way to a legit loan during these hard times when they badly need
quick money. Ironically, it is also a chance for them to rebuild their unsightly credit history.
This credit crunch affects home mortgages the most. Think homeless. When credits become unavailable and interest rates push way too hard plus adding the rapid unemployment rate, people lose grasp of their homes. With a bad credit history, an inability to collect a paycheck, and a non-existent home equity, people will have nowhere to go. Lucky are those who hold full home ownership because this is literally their strong fortress during a recession. In loan applications, this is their security pledge. In case they default on their loans, the banks can legally posses their homes and sell them in order to reclaim the credited amount.
Three Options When Applying for a Loan in a Recession
By: Jessic Graham
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