The Credit Crunch
Credit Crunch And Its Impact On Consumers – An AnalysisBefore we start the analysis of credit crunch and its impact on consumers, we first need to understand what the credit crunch really is. A credit crunch and its impact on consumers is a shortage of loans. In other words, banks and lending companies decrease the amount of loans that are approved by ways of upping their lending criteria. This means that loans are more strictly approved. Why Does It Occur?A credit crunch occurs when banks stop lending to borrowers. This is done to protect the assets of the bank because lending may be seen as too risky. In many countries, the banks raise the interest rates on existing loans. This makes it tough for borrowers to repay the loans. Because the borrowers cannot repay the loans, creditors are wary of lending to more people because they do not want to take further risks. One of the major reasons for bad loans is that companies do not properly assess the repaying ability of borrowers before offering loans. Some analysts who study credit crunch and its impact on consumers have blamed the borrowers’ tendency to take on more debt than they can repay. Impact On ConsumersCredit crunch and its impact on consumers has been debated for a while now. When interest rates rise and debtors cannot pay up, their properties are seized. Banks and lending institutions hike the interest rates to discourage borrowing. When this happens, mortgage rates increase. Due to this, there are less buyers for real estate. Which on the other hand leads to an overall dip in the property market.
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Another impact is on the jobs. Many companies decrease hiring because they feel that they may need to retrench should the recession get out of hand. People who are already under debt find it difficult to repay loans. The higher interest rates mean that refinancing or getting another loan to repay mortgages is not an option. Recession ensures that incomes don’t rise. Surviving The RecessionTo minimize credit crunch and its impact on consumers, they need to start borrowing responsibly. You have to start thinking about how to survive the credit crunch. The interest rates are high, so you need to think in terms of how you are going to repay the loan. If you are going to apply for credit, then do so only after going through your credit report. Lenders do not want to take risks by loaning to people with less than satisfactory credit reports. If your credit report is bad, be prepared for high interest rates. Reduce dependence on credit cards, as any default in payment will attract severe penalty and blot your credit report. If you are a mortgage holder, then prepare for ways of reducing the mortgage rates. Renovate your home to increase its value, and sell it so that you can buy an auctioned home at lower interest rates. The global credit crunch that started with high interest rates in the US will affect the world, including UK, so prepare for it. By constantly monitoring the credit crunch and its impact on consumers, you may be able to ride the wave and even turn the situation to your advantage. |
