| Life is expensive, so sometimes we need a loan. The trouble is, life has gotten so expensive that many of us can't even get that loan anymore. Amidst historic inflation, interest rates we haven't seen in decades, and newfound skepticism around the banking industry at large — it's become harder than ever to get a loan. What's changed? Inflation: The cost of everything has increased rapidly over the last two years. While this might be inconsequential on items like eggs that went from $1.48 a dozen in 2020 to $4.25 last year, it has a big impact on items that require loans. Thanks to a booming housing market, mortgages now serve as a primary example of inflation hitting where it really hurts. Back in Q1 2020, U.S. homebuyers could secure a mortgage on a median-priced home for roughly $1,639 per month — now that number is more like $2,870, a 75% increase. Interest rates: The implications inflation can have on big-ticket items are exemplified perfectly above, but rapidly rising interest rates have given that inflation an extra boost. The average rate on a personal loan is up by 1.5% from this time in 2020, auto loans are up similarly, and the average credit card APR is up roughly 4% during that same timeframe. Borrowing money makes sense sometimes, but it's getting harder to justify, and even harder to qualify for as the cost rises. The result: While it's not something being paraded obviously, it's assumed by now that most banks are tightening their lending standards as a result of this. Goldman Sachs economists estimated that roughly 40% of banks with a low ratio of FDIC-insured deposits would be handing out fewer loans this year, and smaller banks with more insured deposits would pull back by around 15%, creating a net -2.5% drag on total lending. Industry risks: Banks and consumers were already under a heightened level of stress, but the anxieties have only increased lately as we've seen a few big-name banks fail, more undergo stress tests, and worries of contagion continue to spread. Ultimately, we're seeing both parties raise their trepidations about each other and act more apprehensively than ever, which creates risk for both sides. The takeaway We can acclimate ourselves to this newly rigorous lending environment and hope for some relief. And focus on some obvious basics — save more, aim to make more, pay down debt, grow your skills, and budget. Elsewhere, look for alternative financing methods for the things that matter most. Consider ARMs, special programs, and mortgage buydowns for housing, putting off car purchases, and spending less on discretionaries. Take this related lesson and earn 🟡 Dibs: | 
No comments:
Post a Comment