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Prospects for Loans

Major banks around the world are struggling to hold their businesses together as there sources of loans dry up, causing a liquidity crisis that is preventing them operating their normal trade. Without available money they can't offer loans and that's how most banks make profits.

The interesting part of this scenario is that interest rates are on a downward spiral, at least in the US, where rates are expected to drop to 2% soon after sitting at 4.25% at the start of the year. That should bring the prospect of some very cheap loans if only the cash was available.

Well there is cash available as world central banks have been pumping extra money into the markets but you'll only be a candidate for borrowing it if you are a very safe credit risk. That's because the fuel that makes the banking merry-go-round work is confidence, confidence that loans will be repaid on time and regular interest payments met as expected.

So if you have a good credit record and can easily prove that your earnings will allow you to meet your loan interest repayments comfortably, then a cheap loan is very likely to be available to you. However for people who may have had credit problems in the past, perhaps they have missed some loan or credit card repayments or have taken too long on a mortgage payment or even worse, have one of more CCJ's against their name, then finding a suitable loan, in fact any loan, is likely to get more difficult.

The issue is risk and banks have been taking too many risks in the chase of profits over the past few years and the resulting credit crunch is biting them back for that behaviour.

We've just heard that Northern Rock is set to cut half of it's workforce and reduce it's mortgage loans by half too. A sure sign that loan markets are in for a difficult time during the rest of this year. So finding loans is set to become harder, but the good news is that once you find othem, they are likely to be cheaper loans that would have been on offer last year.

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