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Top Three Reasons Why Personal Loans Make Sense For Lender and Borrower Alike

[Feb 26, 2009.]


In all the hullabaloo over the credit crunch / subprime lending disaster, what's been missing is the realization that when credit markets function properly, both borrower and lender benefit. The borrower gets a loan, and the lender makes a profit. It's a beautiful thing--when it works.

Personal loans are a great example of a loan that works for both parties, when structured properly. Here are five things to think about with respect to this lender-borrower dynamic:

1. Borrow Low, Lend Higher

The Wall Street Journal recently hit the nail on the head when reporter Valerie Bauerlein outlined the profit strategy for banks, and noted that it still works: borrow low, lend higher.

At this moment, banks have a unique opportunity because the interest rates at which they are borrowing are extremely low, by historical standards. Indeed, the Federal Reserve is flooding the credit markets with "cheap money," and banks are being encouraged to gobble it up.

As banks can begin to have confidence that the bad loans already on their books are not going to capsize the entire banking industry, one can't help but imagine that personal loans made to creditable buyers under profitable terms are going to become more readily available than they are now.

2. Borrowers Don't Mind Paying Good Money for a Personal Loan

One of the fortunate consequences of the collapse of lending standards at the start of the 21st century is that now, in the aftermath, borrowers realize that lenders don't lend money for free, nor for their health.

In past years, borrowers were constantly in search of the absolutely lowest rate, payment, no points, zero interest rate teaser, and so on and so forth. Now, the average borrower for a personal loan is more than willing to pay a decent price to obtain a personal loan.

And why not? When the money is needed, it's worth paying.

3. This Is Not the Great Depression

During the Great Depression, unemployment reached 25 percent. It didn't just hit those high marks, either; it stayed high for a long time.

Unemployment kills the personal loan market because repayment of a personal loan depends on a steady source of future income. Otherwise known as a job.

Yes, unemployment has been going higher of late, but there are still a lot of people receiving paychecks. This may not be boom times, but this is NOT the Great Depression and with some hard work and smarts, we will recover.

Banks can and should be making personal loans to borrowers who are employed and plan to stay that way. Indeed, this will continue to happen, as long as money exists to be lent and borrowed, because a properly structured personal loan makes sense for both parties.


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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