Top Three Effects of a Federal "Bad Bank" on the Personal Loan Market

[Feb 12, 2009.]

 

Washington D.C. has been in the news a lot lately. That's likely to continue as the nation attempts to grow out of a pretty deep economic hole, with much of the problem caused by too easy credit.

The latest effort by the Obama team has centered around the concept of creating a so-called "bad bank." This idea would, in essence, see the Federal government purchasing bad loans from struggling banks, and then trying to sell such loans to investors.

Whether or not this would work is debatable. What's not debatable is that the idea is being seriously considered, and, if implemented, may seriously impact the availability of unsecured personal loans.

Here are three ways how:

1. Unsecured Personal Loans Easier to Find

The biggest and most obvious answer as to what a "bad bank" would mean to consumers seeking personal loans would be that such loans would, presumably, be more available than they are now.

To many consumers, especially those with poor credit or a large existing debt load, obtaining an unsecured personal loan looks like a pipe dream right now. With banks loaded down with huge non-performing mortgages, the availablity of credit is shrunken to a shell of its former self.

Although not everyone agrees that a bad bank is the answer to the credit crunch, there can be little doubt that if a bad bank began buying up bad mortgages and clearing them out of the bank balance sheets, banks would have more money to lend.

But may not want to lend in as large of chunks as before, e.g. $700,000 mortgages. Certain banks could make a strategic decision to focus on smaller loans, such as...unsecured personal loans.

2. Personal Loans Get Personal Again

In past eras, a personal loan was a truly personal loan. It was based on a person to person relationship. Those days may be coming back.

Stopping and talking to those people over at those desks at the bank is a great idea if you're seeking, or may need sometime soon, an unsecured personal loan. Those people are called personal bankers, and they want to get to know people.

Make them happy, and increase your chances of getting a personal loan by being a person with a personality, rather than just a number.

It's who you know, and how well they know you.

3. Repayment Issues

The eternal question with unsecured personal loans is what happens if they're not paid back. That's why credit score and personal relationships matter so much.

Different lenders structure deals differently to account for the whole non-repayment possibility. If a bad bank buys up bank debt and frees up lending capability, look for bank to look at and adjust unsecured personal loan policies.

Specifically, some collateral may be asked for, such as the pink slip to a vehicle. Banks are sick of losing money, and need to start making some back.

 

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.