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Three Economic Indicators to Watch When Seeking a Personal Loan

[Mar 28, 2009.]


Obtaining a personal loan has a lot to do with timing. Today, personal loans might be more available than they will be tomorrow, or vice versa. It's as much about when as it is about how much.

But how can one know when, exactly, the chances of obtaining a needed personal loan are greatest?

Like predicting the stock market (or life itself), luck has something to do with it and so does good credit history--but so, too, does knowing the signs that the time is ripe.

Here are three signs that it's a good time to obtain a personal loan:

1. Low Short Term Interest Rates

Short term interest rates are heavily influenced by the behavior of the Federal Reserve, in other words the U.S. government. Especially in these times, when the government is essentially the biggest lender (and the biggest borrower) on the globe, it's worth watching the news to see what the Fed's doing.

Right now, for example, the so-called "Fed funds rate" is near zero percent. This basically means that money lent for a short time can be obtained at extremely low interest rates.

When lenders can borrow at low interest rates, making personal loans makes a lot of sense. Unsecured personal loans, after all, are usually quite short term in nature. Profit potential is thus high for the lender, and approval potential rises in line, from the borrower's perspective.

2. Employment Statistics

The unemployment rate is vital to monitor when seeking a personal loan, simply because unemployment is the main cause of loan default. The economy is so interconnected, too, that layoffs in one company can quickly lead to layoffs in other companies.

When such a dynamic is in play, lenders are extremely wary about extending unsecured personal loans.

However, even in an environment of rising unemployment, a borrower can put himself in a better position to obtain a personal loan by pointing out, for example, that his job field has not been hard hit, and is still in demand. Knowing numbers is a great way to talk to a lender.

3. Credit Card Default Rates

Credit cards and unsecured personal loans are, in some ways, similar. Both are pure forms of credit, in the sense that no collateral is posted at the time the loan is made. That can be a risky proposition for a lender to undertake.

By watching credit card default rates, one can gauge the situation of lenders who lend to consumers. If credit card default rates are high and going higher, it's going to be difficult to obtain a personal loan.

As with the unemployment example cited above, be prepared to show why you're different, and why you're a good credit risk.


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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