Consumers want more loans, banks more willing to lend

Two very positive signs that may indicate just how quickly the economy is improving were revealed in a recent survey of bank officials, which found that consumers want more lines of credit than they did in the past, and banks are slowly beginning to rise to meet the increased demand.

In the third quarter of the year, banks were slightly more willing to start issuing installment loans, credit cards, and auto financing to consumers than they were at the end of the second quarter, according to the latest Senior Loan Officer Opinion Survey on Bank Lending Practices issued by the Federal Reserve Board. In all, eight of the 63 banks surveyed said they were “somewhat more willing” to extend installment loans now, led largely by smaller institutions. The remaining 55 banks said their standards were unchanged.

A look at credit cards

Meanwhile, when it comes to credit cards, six of 54 banks that issue them said they eased their credit score standards for those accounts in the last three months, the report said. In contrast with installment loans, this change was driven mostly by large banks, as five of the six [that] said they relaxed standards fell into this designation.

And on those specific accounts, banks seem to have been more relaxed when it comes to dictating the terms of both new and existing cards, the report said. For instance, four of 46 banks (all of them larger lenders) said they eased credit limits slightly for consumers, while two of 46 said interest rates were somewhat more relaxed as well.

One bank, a smaller issuer, out of those 46 said it also eased the percentage of an outstanding balance required as a minimum payment each billing cycle “considerably,” the report said. Another bank, this time a large one, also said it eased its minimum credit score requirements somewhat, and this was also true of the extent to which one would grant borrowers outside the set credit range such an account.

Consumer loans in general

On the other hand, when it comes to non-auto installment loans, banks were actually a little more cautious in dealing with specific terms than in the previous three months, the report said. For instance, one large bank out of 62 said it tightened its maximum maturity on these lines of credit, while two, both of which were small lenders, said they tightened the spread of rates they offered to consumers.

However, one small lender of those 62 also slightly eased minimum required down payments, the report said. Minimum credit score requirements, however, were more of a mixed bag, with one large bank tightening them, and one small one easing them. The other 60 said their standards held more or less steady. At the same time though, two banks (one large, the other small), said they also tightened the extent to which they’d grant credit to potential borrowers outside their requirements.

Meeting demand

In general, consumers seem to want more loans of all types these days, and that’s reflected among many lenders, the report said. For instance, eight of 47 said they saw moderately stronger demand for new credit cards, while four, all smaller lenders, said they saw it grow slightly weaker. The remaining 35 said demand held more or less steady.

Similar numbers were seen for other non-auto consumer loans, as eight of 62 said demand increased slightly, compared with five which said it shrank, the report said. However, when it comes to auto financing, borrowers were far more emphatic, and 13 of 59 banks said they saw moderate upticks in requests, compared with just three that received slightly fewer.

When it comes to extending financing to consumers, many banks may be emboldened by the fact that unemployment rates continue to shrink and consumers generally seem to have a better time in dealing with their finances. Despite experts’ predictions that rates of delinquency and default observed earlier this year had to be at or somewhat near the point at which they would bottom out, that hasn’t yet been the case, as both continue to decline across many loan types, particularly credit cards. However, some also caution that consumers getting back into borrowing may result in increased instances of late payments because some borrowers may be qualified, but still financially unprepared for certain types of financing.

Missing payments and taking on heavy debts are two factors that can significantly impact your credit score, but when it comes to maintaining overall financial health, you may want to also take the time to order and look over your credit report. This will help you identify any potentially unfair markings that may be marring your standing, and working with a credit repair company can help to put these problems to rights.

Posted in Finance
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