Borrowing Scenario During Recession

Recession could be considered as the process of “resetting” the economic conditions of the country. Because of various economic movements in recent years, the economy has no choice but to go on recession.

From the sub-prime mortgage crises to mismanagement of different industries in the country, the push for recession has become a reality. Through recession, everything would hopefully go back to normal conditions where the fear of job loss and financial troubles will be long gone.

But this process will take months or even years depending on the capability of the country. “Resetting” the economy will definitely happen but not without dragging companies from different industries to the ground. For example, the auto industry as well as the financial industry is not on the brink of bankruptcy if they do not receive enough assistance for the government.

Going Back to Basics

As part of coping with the troubles of recession, banks and lending institutions are now starting to go back to basics of lending. To be specific, the lending practices of the 70s are not starting to be realized. The lending practices during the 70s are a little bit conservative compared to the lending practices of today.

The following are the similarities from the 70s that are starting to show up:

• The required 20% down payment – although it’s not mandatory, the difference in interest rate is very high that you’ll be compelled to look for funds for a down payment.

• Limited access to loan – the screening process of lending institutions today are sometimes called “debilitating” since they don’t just look at credit standing anymore. If you can’t show a long term source of income today, you can’t be approved.

The main problem for these requirements is that these lending practices are feasible during the 70s. The economic conditions back then and very favorable. Jobs are a lot stable back then even though the industries are limited.

For that reason, the thought of going back to basics are only feasible for the lending institution. If you’re not ready for these changes, you better be prepared and work hard so that you can easily cope up with the upcoming changes.

Ways in Coping with the Changes

The slowly changing environment in banking should be met with the same financial changes in your life. This is especially true if you’re thinking of applying for a mortgage or any form of loan with a long term repayment.

Take note that these changes are not easy. But the long term effects will always be there even if you are not looking to borrow.

• Boosting Your Credit Rating – this is one of the challenges of current consumers. Lenders today are not likely to entertain consumers with low credit scores. If your FICO is less than 650, you’ll most likely end up being denied. Look for ways to increase your credit rating fast so that you can adapt to the quick changes in banking practices.

• Save Before You Loan – the down payment requirement is getting more and more popular among banks and other lending institutions. As much as possible, save at least 10% of your monthly earnings so that you can slowly but surely reach the required down payment. It’s also a good way to save for emergency purposes.

• Find a Steady Job – lending companies are not only looking at your credit rating, they are also looking at your current financial status.

You need to be financially stable so that you can provide the monthly payment. It’s even better compared to credit rating for short term loans since lenders are looking for quick access to payments.