Available Loan Products During a Credit Crunch

Businesses across the country are being forced to close their doors, due to the credit crunch that is preventing those companies from getting the credit lines that they require to maintain operating costs. Other businesses like the auto giants are suffering from lackluster sales, not because they produced a bad product, but because banks tightened the reigns on consumer auto loans, preventing consumers from buying those high-dollar products.

As we turn on the news each day or pick up our local newspaper, we are inundated with the bad news about the effects of the credit crunch on the larger economy. With so much bad news about the economy, it is easy to believe that the credit crunch is deep running and affecting every sector of the economy. But the truth of the matter is that the credit crunch is pretty much regional in nature and it is only affecting certain types of lending.

Strong Regional Economies

According to an April 2008 story by Forbes Magazine, "America's Recession-Proof Cities", some cities have shrinking unemployment, low foreclosure rates, and a growing economic base. The top ten cities were:

1. Oklahoma City, Oklahoma;

2. San Antonia, Texas;

3. Austin, Texas;

4. Houston, Texas;

5. Charlotte, N.C.;

6. Dallas, Texas;

7. San Jose, California;

8. Raleigh, N.C.;

9. Salt Lake City, Utah; and

10. Seattle, Washington.

In these strong regional economic centers, banks, savings and loans, and credit unions are still loaning money for cars and homes. I should know... I live near one of these top ten cities and we are able to go to our local credit union to get loans for anything we desire.

Strong Lenders

Banks are closing credit lines for some of America's largest corporations, and in many locations, banks are withholding money for car loans and home loans. In locations where home foreclosures and car repossessions are high, lending is light. Banks that need to shore up their finances are withholding loans, even to top-rated borrowers. Other banks in a local area might be strong financially, but that strength is offset by an overabundance of caution in a weak economy.

The lenders who have traditionally been large and strong are now weak, and the lenders who have traditionally been smaller and more conservative are tending to be much stronger financially.

The smaller finance companies that tend to loan smaller amounts of money are also strong. Since those companies typically do not loan money on the big-ticket items such as cars and homes, they have managed to retain a stronger financial position in the marketplace.

Even payday loan and cash advance loan companies remain strong in an economy where big loans are hard to find.

Finding The Right Loan Product

When you are looking for a loan, it is never recommended to figure out where you can get the money first. Instead, one should figure out exactly how much money is needed, for what purpose, and what terms are acceptable to acquire the money.

For example, if one needs money to buy a car, a payday loan company will very likely be unable to loan the amount of money needed to actually buy that car. If you are buying a used car for under $3000 or $1500, you might be able to find a payday loan company to give you the money, but you have to honestly ask yourself if you could definitely have the money available to pay that loan back within two weeks. Since payday loans are loan products for people who need emergency cash for two weeks, one should use a regular finance company, bank or credit union to acquire the loan that you need months to pay back.

You might think that the easier-to-get payday loan might be your solution for a used car loan, but once you roll that loan over a few times, the cost of that money starts to become very expensive. In states like Oklahoma, you would not even be permitted to roll that payday loan over, by state law.

When you are borrowing money for two weeks or one month, a payday loan is usually a pretty affordable option for getting that emergency cash, but once you start rolling that payday loan over several times, then the cost of the money becomes such that it will easily exceed the cost of money from a finance company or credit union.

As this example shows, more important than finding a loan is finding a loan that has payment terms that are acceptable and affordable for the borrower. Any loan that cannot be paid back on schedule is a loan that should not be taken.

Responsible Borrowing

You owe it to yourself and your family to be responsible with your personal finances. Even when you are looking to borrow money, you should take the extra effort to make sure that the decision you are getting ready to make is one that will not hurt your and your families' financial future.

This means that you should never borrow any amount of money you cannot afford to pay back on schedule. And while it might be nice to drive a new car, one of those used cars might make better financial sense to buy.

This is the reason so many families lost homes to foreclosure. People bought more house than they could afford to maintain, and they borrowed so much money that they could barely afford the monthly payments. Their homes suffered because they could not afford to keep up with repairs, and when an emergency expense came up, they found that they could not make all of their bills in that month. Once someone gets behind on payments, it is hard to get caught back up, so the homeowners' finances continued to get worse and worse.

Eventually, homeowners found themselves so far behind that the bank was threatening foreclosure, and the homeowner was so far behind that foreclosure seemed the best option to them.

Foreclosed homeowners lost all of the equity that they had managed to build up in their homes, and after struggling for years to keep their homes, they found themselves renting an apartment or a house once again, and their credit ruined.

Sadly, most foreclosed homeowners could have prevented the loss of their homes, had they only made better decisions when they bought the home. If only they had purchased smaller homes, with smaller monthly payments, they could have prevented the problem, before it became a problem.

Only borrow what you can afford to pay back, and when you are looking for a loan, make sure that you can live with the terms of that loan.

In Conclusion...

With this having been said, there are loans out there available to the consumer. So if you need money for a purchase, there is a chance that you will be able to find the money you need.

But, you should be careful to only borrow money you can afford to pay back in a timely manner, with terms you are comfortable accepting.

As the last several years have proven, the only person out there that is going to look out for your best interests is you. So don't let yourself down. Take the time to understand what you need, what you can afford, and the loan terms that are acceptable to you, and then make a responsible decision about what you can and cannot do.

Invest the effort to look out for your own best interests, and at the end of this current recession, you will find yourself in a better financial position than your neighbors who did not look out for their own best interests.