When you have just filed for bankruptcy, and are in a precarious financial position, it almost seems impossible to find a bank that would offer you a substantial loan. Usually, big banks focus on their wealthy customers and tend to disassociate with the people who could really use a financial helping hand. But according to a recently published article by NBC News, big banks are shifting their focus to the needier people without the best credit. For example, a Brooklyn woman who just emerged from bankruptcy and had her car repossessed explained to the New York Times that she felt she would never find a bank that would give her a much needed loan. She was out searching for jobs, but struggling to make ends meet with little to no income. Yet, one day she arrived back to her apartment to find a pile of credit card and auto loan offers in the mail.
Why are the banks suddenly zoning in on the people without high credit scores? Up until recently, borrowers with a low credit score were shut out by traditional lenders, and needed to use other means to get the money that they needed. These people would flock to small cash advance stores in their local mini-mall, or put their car on the line with an auto title loan. In fact, it was even hard for someone with an average credit score to get a good loan. Right now banks are climbing out of the financial slump, and trying to regain the customers that they once rejected.
Equifax Credit Trends says that credit card lenders gave out 1.1. million new cards to borrowers with bad credit in December. That is 12.3 percent more than the amount of cards given to these people in December of 2010. Experian, another credit scoring firm, says that 23 percent of all auto loans are given to people with damaged credit. The amount of people with bad credit who are getting these loans is rising, as it is up 17 percent from 2009. While customers may be elated that they can now get the money that they need so desperately, some financial advisors are concerned. They say that the banks may be preying on the most vulnerable lenders.
Oftentimes, people have bad credit because of their poor financial decisions in the past. By encouraging these people to borrow more, financial institutions worry that they are promoting another bout of eventual bankruptcies. A New York bankruptcy lawyer says that these people are addicted to credit, and when banks allow them to borrow once more, the addiction will only culminate. Former banking regulators say that this lending to subprime customers may send the banks into another credit crisis. Regardless, the banks have a plan that they intend to use to make up billions of dollars.
The New York Times says that subprime borrowers normally pay high interest rates, up to 29 percent. They also tend to be late on payments incurring expensive late fees that the bank is relying on to bring in the funds that they need. If you are a subprime borrower and need the money that only a bank loan can provide, then you should learn to borrow responsibly and pay your bills right away. This way you will avoid the expensive tardy fees that can pile onto your debt. In the recent economic downturn, banks suffered just as families did, losing billions in fee incomes that were erased when the financial district adopted new regulations.
These regulations forced banks to focus on the two polar ends of their business- the high end and the low end. Now, as they shift back to the regular way of banking, the banks say that they want to search for the "fallen angels." These are middle to low class citizens who have fallen on hard times, and may have a poor credit score, but intend to be honest with their money and pay their loans back on time. So if you have had your credit damaged by a bankruptcy, and need a loan, start looking out for banks in your area that are reaching for clients without the best credit.