Loans in Short Supply
First published - Monday 6th October 2008
The credit difficulties being experienced by the banks around the world are largely being casused by the lack of money in the financial system and the reluctance of banks to lend to one another. This of course is creating similar effects for customers of those banks who are finding that loans are in short supply. Many people who, 12 months ago, would have received a positive response to a loan application are now being turned down. Even though interest rates do not seem to have increased that much and cheap loans are still available, they are only on offer to certain customers.
The real issue in lending circles at the moment is the management of risk. Banks do not want to lend to anyone, commercial or private customers, where there is any real risk of them not getting their money back. The risk of banks going out of business or becoming nationalised as a last ditch rescue attempt, as we have seen in the US and the UK recently, is the cause of the liquidity problems we are seeing at the moment. That reluctance to offer loans between banks is no very apparent in the personal loans marketplace too.
Whereas previously loans companies would use the security offered by home equity to de-risk a loan, recent falls in property values are reducing the options available for securing loans. Only those people with high levels of equity have any real chance of arranging a secured loan against their properties. The other situation that makes these equity levels even lower is the caution being applied by the property valuers. Many are erring on the side of caution and proposing very low property valuations during this time of market uncertainty.
If a customer applies for a suitable loan and has the credit profile and home equity levels required, then decisions on loans are still being made quickly. Many companies use automated credit scoring systems to speed up the process and because the number of lenders and loan choices is now much lower, there's an argument to say that loans are even quicker to arrange now than they were previously.
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Loans and Fuel Bills 04.03.2008
