The recent recession has affected a lot of people adversely – many have lost their jobs, some have filed for bankruptcy and quite a few are struggling to make ends meet. During the toughest times, credit was not available to many, let alone loan for bad credit ratings.
The whole world has been hit hard by recession and financial woes – one aspect in which this is very evident is the free availability of credit to customers. The fact is that even during stable economic times, there is always a segment of the population which struggles to make ends meet and doesn’t qualify for credit from traditional lenders. During financial crises even customers with stellar credit ratings found it hard to qualify for loans. As financial institutions are slowly beginning to recover from losses, they are now offering loan for bad credit situations. These institutions are picking up the slack and venturing into subprime lending again.
People with damaged credit ratings are getting access to credit again – through credit cards and also the ability to buy cars again. Banks are looking to make up for the money that they have lost during the crisis by focusing more on the subprime sector – people who need the credit but not able to pay on time and rack up late fees. A few people who had good payment and credit histories fall into this category – they took a hit as well, when the economy was foundering. Banks are expected to be responsible and careful lenders – by evaluating risks and costs associated with loans.
Who will qualify?
Regulators are of the opinion that as long as banks and financial institutions adhere to strict standards for underwriting loans and monitor risk, there is minimal risk in giving credit to a wider segment of the population. Lending is on the rise and this is a sign of economic improvement – when people are unemployed, most others are cutting back on borrowing to keep their debts low. Delinquency rates on car loans and credit cards are also at an all-time low - banks are lowering their standards/criteria on credit as they feel that there is room for expansion in the market. Lenders also feel that they will miss out on potential and new customers if they keep looking at people with perfect credit scores.
Subprime borrowers are people who have credit scores of 660 or less. The mortgage market has not yet lowered its standards – so it is mostly closed to all but the creditworthy. Some well-known institutions have been courting people with questionable credit – even those people who have just come out of bankruptcy. The aim is to provide credit access with appropriate measures in place to ensure that customers remain on track during the process of rebuilding their credit.
Many of the lenders are focusing their attention on increased advertising – while others are offering special cards for those with damaged credit. The program enables such people to get a lower interest rate if they make their payments on time for a whole year. Car loans appear very attractive to these lenders as they were not included under the umbrella of financial regulations. Some of the major players in the auto loans industry expect loans made to subprime customers to grow at a steady pace. The prevailing belief is that auto loan makers are better at managing risk even when they make loans to customers with poor credit.
Most customers with bad credit are wary of receiving credit card or even auto loan offers as they don’t want to risk getting further into trouble. Most lenders believe that they are in a position of establishing good relationships in the long term by offering loans for bad credit customers, which will succeed in the long run.