Fall on Consumer Borrowing

The recession that occurred in the 3rd and 4th quarter of 2008 was mainly caused by reckless lending of different financial institutions to take advantage of several markets, particularly, the housing market. One of the major financial sectors affected by the economic downturn was the banking and credit sectors.  A lot of banks and creditors did not have any other choice but to erase from their records the bad debts worth around £3.2 million throughout the year 2009.

Because of the consequences that they themselves caused, many of them have become stricter and meticulous in issuing loans and credit to the public.  Despite the good news we are hearing about economic recovery, a lot of individuals in the UK and the US are still finding it difficult to get a hold of loans or refraining from borrowing at all.

As the year 2009 is about to end, finance research and reports show a decrease in consumer borrowing, and with borrowing and lending slowing down, we can expect that consumer spending soon will follow. 

The birth and enforcement of different restrictions in granting loans came from both consumers and lenders.  Both parties are more careful nowadays because of the consequences that comes with it.  Financially-stable customers choose to stay safe and settle with what they currently have and choose not to put at risk their current stature by borrowing unnecessary loans or credit.   Different banks and credit companies, on the other hand, are taking more steps to ensure that they are lending money to people who have the capability to compensate.

A lot of loan and credit applications still keep on coming.  Nevertheless, because of harder regulations and conditions issued by lenders, many of them are being rejected. 

A study conducted by Pricewaterhouse Coopers states that an approximate total of £1.5 trillion have been taken down while £230 million has remained for credit cards and personal loans in the UK alone.  Among these, the one that has been really affected is the credit market ever since the government and financial institutions required tougher guidelines and because of the number of consumers getting loans such as debt consolidation loans for the purpose of paying off their previous debt.

You do not have to be a financial guru to wonder why it’s now like this.  Back when obtaining credit happens on a whim, banks promoted, advertised, and gave off credit cards to people here and there without doing any proper analysis or background assessments.  Nowadays, banks and credit card companies take into consideration every financial statement of any potential borrower.

Furthermore, the events that lead to the current credit crunch served an important lesson to all.  The most important to keep in mind is that people should only borrow money if they need it and if they will be able pay it in the long run.