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Three Ways China Affects the Availability of Unsecured Personal Loans

[Jul 22, 2009.]


China seems so far away, especially for the average person in need of an unsecured personal loan. But in reality, China has a great impact on John Q. Public's ability to secure that unsecured personal loan.

Here are three reasons why China makes a difference for anyone looking for a personal loan:

1. The Chinese Savings Rate Creates a Savings Glut

The Chinese are famous for saving large percentages of their income. By some estimates, the average Chinese person saves up to 50 percent of income. That person--or, rather, those hundreds of millions of people are then confronted with the question: where should I put my savngs?

The answer, over the past decade, has been the United States financial system. Chinese savings have flooded into both Treasury bonds and U.S. banks. All this money coming in has created a savings glut at a time when the American savings rate was zero or even, for a brief moment, negative one percent.

2. A Glut of Savings Makes Lending an Attractive Option

Those who have money need those who need money almost as much as vice versa; this is the unspoken law of the global economy. With so much savings available, it's only natural that finance folks are looking to make a better interest rate return on their money than they can get buying Treasury bonds.

Thanks to Chinese savers, Treasury bonds pay low single digit returns. Extending small personal loans to consumers, in such an environment, becomes an attractive option, with returns of 10 or 12 percent.

3. Bigger Banks Doing More Personal Loans Because They're Flush With Deposits

The American savings rate is now at seven percent, after years of being at zero percent. Combine that with the high Chinese savings rate and now the big banks really need to do something with all those deposits.

One of the things they're doing with all those deposits is making small unsecured personal loans to John Q. Public. Especially for borrowers who have relatively good credit and an existing relationship with a major bank, unsecured personal loans may be easier to find that one might think: just walk in and ask.

Of course, if China begins investing in China more than in the U.S., all bets are off.


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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