When the great recession of 2008 hit, sub-prime borrowers, meaning those considered as “high-risk” clients, where shunned down of credit card accounts, student loans and financial loans. Heck, even people with great credit ratings were denied of loans. But as lending companies were paid and their losses were recovered, they are opening their doors again for sub-prime borrowers, who are generally defined as people with credit scores of 660 and below.
Some of the companies which are opening their doors for those who were once considered as high-risk customers are GM Financial and Capital One. Testing the waters and trying to follow suit are JP Morgan Chase and HSBC.
Fantastic figures
In December 2011, credit card companies approved accounts for 1.1 million users with sub-prime credit. The dramatic increase in rate was 12.3%, compared to the new credit cards released in December 2010.
As for auto loans, 23% of those granted money in the last quarter of 2011 were high-risk consumers, a far cry from the 17% who were given the opportunity to make car loans in 2009. Despite these impressive figures mortgage loans remain closed for sub-prime borrowers.
Why do business with sub-prime clients?
So why are lending companies knocking on the doors of sub-prime consumers once again? Industry experts believe that it’s because with their credit scores, they have to get used to paying higher interest rates – as much as 29 percent. They also pay additional fees when they go beyond the due date.
Because of these projected profits, most credit card and lending companies are sending flyers and invitation letters to people who were not able to pay them in the past – inviting them to apply for credit and auto loans, among many others.
Concerns
While financial experts worry that this leniency in lending will result to the nightmare that was the 2008 credit crisis – lending companies assert that they have learned from the mistakes they made in the past. For example, JP Morgan Chase is carefully evaluating borrowers to determine if they can pay the fees or if they’ll just run away and change their names and addresses.
As for the Office of the Comptroller of the Currency, as long as banks’ lending money to borrowers are conscious of the standards and the risk of transacting with high-risk clients, there’s no problem in catering to the needs of these individuals.
Sign of an improving economy
While some experts worry that extending credit to high-risk individuals can bring about another credit fiasco, some industry leaders believe that it’s a sign that the American economy is improving.
Despite the high unemployment rate, borrowers, especially those from the sub-prime bracket, have done their best to pay off at least some of their debts. Because of the decreased rates of delinquency and auto loans, banks feel that they can cater to customers who were shunned during the recession. Lenders also believe that they will miss out on the clients which will bring them some profit if they just focus on the people who pay their debts well and on time.
With these great promises, economists can do nothing but hope that this will give sub-prime consumers a chance to capitalize on the opportunity, which might help strengthen America’s economy once again.
This article is provided courtesy of Bad Credit Loans Direct, a consumer finance website providing information and tools on small loans for bad credit and other personal credit services.
Some of the companies which are opening their doors for those who were once considered as high-risk customers are GM Financial and Capital One. Testing the waters and trying to follow suit are JP Morgan Chase and HSBC.
Fantastic figures
In December 2011, credit card companies approved accounts for 1.1 million users with sub-prime credit. The dramatic increase in rate was 12.3%, compared to the new credit cards released in December 2010.
As for auto loans, 23% of those granted money in the last quarter of 2011 were high-risk consumers, a far cry from the 17% who were given the opportunity to make car loans in 2009. Despite these impressive figures mortgage loans remain closed for sub-prime borrowers.
Why do business with sub-prime clients?
So why are lending companies knocking on the doors of sub-prime consumers once again? Industry experts believe that it’s because with their credit scores, they have to get used to paying higher interest rates – as much as 29 percent. They also pay additional fees when they go beyond the due date.
Because of these projected profits, most credit card and lending companies are sending flyers and invitation letters to people who were not able to pay them in the past – inviting them to apply for credit and auto loans, among many others.
Concerns
While financial experts worry that this leniency in lending will result to the nightmare that was the 2008 credit crisis – lending companies assert that they have learned from the mistakes they made in the past. For example, JP Morgan Chase is carefully evaluating borrowers to determine if they can pay the fees or if they’ll just run away and change their names and addresses.
As for the Office of the Comptroller of the Currency, as long as banks’ lending money to borrowers are conscious of the standards and the risk of transacting with high-risk clients, there’s no problem in catering to the needs of these individuals.
Sign of an improving economy
While some experts worry that extending credit to high-risk individuals can bring about another credit fiasco, some industry leaders believe that it’s a sign that the American economy is improving.
Despite the high unemployment rate, borrowers, especially those from the sub-prime bracket, have done their best to pay off at least some of their debts. Because of the decreased rates of delinquency and auto loans, banks feel that they can cater to customers who were shunned during the recession. Lenders also believe that they will miss out on the clients which will bring them some profit if they just focus on the people who pay their debts well and on time.
With these great promises, economists can do nothing but hope that this will give sub-prime consumers a chance to capitalize on the opportunity, which might help strengthen America’s economy once again.
This article is provided courtesy of Bad Credit Loans Direct, a consumer finance website providing information and tools on small loans for bad credit and other personal credit services.
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