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How to Think Like a Lender, and Why

[Feb 6, 2009.]


There has been a lot of talk over the past year about banks and other institutions that "need to lend" and aren't doing it. In fact, the government has pumped hundreds of billions of dollars into the financial system in order to provoke banks to lend.

But while this call for more lending is often viewed as a moral obligation, it's actually something that banks themselves need to do in order to stay in business.

Moreover, the recent credit market troubles obscure the reality that lending has been a fantastic business all throughout American history. Lending is how money makes money.

But before things can return to normal or some semblance thereof, borrowers should do their part to realize why lenders are wary to lend.

When seeking a personal loan, knowing how the bank thinks can mean getting an unsecured personal loan or not.

In the Event of Default

The worst nightmare of any lender, obviously, is non-payment of the debt. Thus lenders must establish from the get-go what happens if this happens.

That's part of why the mortgage market has been so down, when personal loans can still be had. In many states, a mortgage on a personal home is "non-recourse debt," meaning the only thing the bank can do if the borrower doesn't pay is take the house.

When seeking to obtain an unsecured personal loan, think like the lender does about what happens if repayment doesn't. Propose an outcome, while stressing that it won't come to that.

There are many people today who don't take loan default all that seriously.

Remember Who Lent When Others Didn't

Lenders love borrowers who pay up. Qualifying for a personal loan isn't easy, but neither is making one. Make the lender understand that this personal loan won't be in vain.

First of all because it will be paid back in full and on time, but also because more business is going to come through that front door in the future. There are more loans to be had, and more borrowing to be done.

That's what lenders want to hear most of all. This isn't the last loan, but just like the last one, it will be paid back in full and on time.

People who think like that--and, perhaps more importantly, show the lender that they're thinking like that--can qualify for unsecured personal loans even in this tough economic environment.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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