Despite Fed Rate Cut, Loans Are Harder to Get
Capital One's earnings call Wednesday underscored the fact that just because the Fed cut interest rates earlier this week doesn't mean consumers will find it any easier to borrow money. While banks can borrow more cheaply, they are worried that consumers won't be able to pay them back. So, in Capital One's case at least, it is lending to fewer customers or, in some cases, charging them more.
The company's top executives told analysts that particularly in Capital One's auto loan business, they had experienced an "unacceptable" degree of charge-offs because borrowers were unable to pay back loans. As a result, chief executive Richard Fairbank said the company was no longer lending to the riskiest subset of borrowers. Even for prime borrowers—those deemed low-risk—the standards have risen. On average, the credit scores of Capital One's prime borrowers were 30 points higher in the fourth quarter of 2007 compared with a year earlier.
In other words, if your credit score is less than impressive, you might have a tough time borrowing money to buy that new Jeep.
"In general, [auto loans] are performing poorly. The industry, as a whole, relaxed terms in the 2004-2006 time period. And now they're tightening back up," says Moshe Orenbuch, research analyst at Credit Suisse.
Fairbank added that the financial services provider had increased loan pricing—that is, it is charging higher fees or rates—"to build more resilience into our loan portfolios." Another reason not to expect the Fed cut to provide relief to your own debt portfolio anytime soon.
Tags: economy | loans | recession | car loans
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Reader Comments
We Will Pay
Guaranteed. If you have debt and they see any chink in your armor they will use any number of reasons to raise your credit card interest and it is legal of course. Be late with another creditor and they will be wringing their hands to raise theirs. Seem like a way of price fixing. "Hey Joe at (LoanSharkBank) he paid you late, I will raise their interest too. Hey, why are they having troubles paying 21% from 9% and why are they not getting out of debt. SUCKERS!" "Oops another subprime mortgage....look for more ways to get money.....our prime has went down so WE save a few more bucks"
Last resorts HSBC, Bank of America, Capital one. Yes I too have lost my job over the years and my credit score is shot. Get out of debt and use little of your credit, save if you can....
Oh and the funny part of the banks snubbing you. When you are late on payments and paying late fees, but keeping up for the most part. They make more money off your loan and scold you when you want to refinance...even though you had a rough patch and have a good job again. ANY excuse to make themselves money, BUT that is what they are in business to do. Don't get me started on the Credit Reporting....how does that black box help with "truth in lending" when there is not full disclosure of how you can improve SPECIFICALLY and the weights.
Loans will be harder to get
Lenders took such a loss (at their own greedy doing) that they are going to try to make up their losses somehow. So look out!
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