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Effect of the Credit Crunch for Borrowers and Consumers in Australia

Posted By LendingHub on June 15, 2008 No Comments » Filed under: Banking Industry, Economics and Interest Rates

The ‘credit crunch’ has now lasted for nearly year and is starting to have a fairly noticeable impact on consumers and borrowers.

The inability of many non-bank lenders to obtain funding for their loans means that there are now few competitors to the traditional banks (Wizard has been reported to be up for sale and RAMS was bought by Westpac last year). In addition the banks are now putting interest rates up to maintain their margins and profitability on loans at the consumers expense.

Combine this with the meteoric rise in petrol prices, increases in the underlying cash rate (which drives up the rates on home loans), static or falling house prices and increasing inflation and you get a fairly dire picture for many consumers across Australia,

Currently a consumer who wishes to borrow has fewer choices than say 1-2 years ago and at a much higher interest rate and given the credit crunch most banks would be looking to restrict whom they lend to (even if this means not lending to a potentially good borrow but with an unusual history).

What is the credit crunch?

This was originally driven by a rapidly rising level of borrower defaults and falling property prices in the US market which led to significant losses by lenders. This then led to a loss of investor confidence which has struck both equity and debt markets making debt (principally for businesses) hard to obtain and often at significantly high interest rates.

Opportunities for borrowers

I suggest that even though loans are more expensive and harder to obtain that you shop around your home loan or whatever loan you are looking for before signing up to anyone. Make sure that you compare rates (you can always use the Mandatory Comparison Rate that each lender is required to provide by law to do a quick comparison) and ask each bank to give you a better deal. There’s no harm in trying after all!

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