Personal Loans, the Credit Crunch, and You

By Michael Strauss

You can't fail to have heard about the current economic crisis gripping the world, which is termed the 'credit crunch'. Analysts and commentators have been endlessly discussing the possible ramifications for the global economy, along with breathless revelations about the fantastic sums of money being lost by major banks as they try and sort out the whole fiasco.

The coverage of this saga may seem irrelevant to the average person, but this isn't just a matter of interest to those involved in high finance - it also matters to anyone who has a debt of some kind, and these days, that means just about everyone.

Less Cheap Credit

The crux of the matter is that banks themselves are finding it harder to borrow money, as nervousness about their credit worthiness and exposure to bad debt means the money markets are tightening up. This means that they have to pay more to get the money they use to finance their lending, and naturally they'll try to pass on this expense in the form of higher interest rates charged on their loan products - not good news for those on variable rate loan or mortgage plans.

Defaults

Moreover, an economic downturn or even recession will mean that more people will default on their loans or mortgages, which makes the lenders nervous. This again will lead to higher interest rates, as the banks seek to use people with good repayment histories as a kind of insurance against future losses caused by those with bad.

This nervousness also means that it will be harder than before to be approved for credit, and many people whose credit ratings were previously classed as excellent may find their custom is no longer as attractive to lenders.

Falling Property Prices

As part of a general tightening up of lending policies, the amount of money people can borrow against their property is also going to fall, Where homeowners could once borrow up to 125% of the value of their home, on the expectation of ever-rising property prices, a downturn in the housing market means that lenders will be loathe to extend to more than 80% of your home's value.

The upshot of all this is that if you're considering the need to get a loan, now might be as good a time as any to apply, and get yourself a good fixed rate deal, before the full force of the economic problems kicks in, making your chances of getting a great loan much less likely than it is today.