Unsecured Personal Loans as a Measuring Stick of Economic Recovery

[Sep 9, 2009.]

 

Unsecured personal loans may be one of the best measurements of economic recovery. Unemployment, GDP, and retail sales statistics are important, too, of course, but nothing is quite so eloquent about the state of the credit markets as the availability of unsecured personal loans.

When lenders are willing to lend money to people based upon the belief that people will be ready and willing to pay that money back, the economy can be said to have recovered significantly.

Unsecured Personal Loans and Bank Health

Banks are suffering under the heavy weight of unpaid unsecured personal loans, mainly in the form of credit card charge-offs. At the same time, banks are seeking to make money on personal loans to people with good credit.

Formerly, good credit customers may have gone for a home equity loan, but now that home equity is more scarce, unsecured personal loans are a more appealing options for many borrowers.

Bad credit unsecured personal loans are more commonly offered by specialty lenders, including social lending Web sites like Prosper.com and Lending Club, because banks are simply not in a positon to extend risky loans to borrowers with poor credit.

If and when banks do want a piece of that action, it may be a sign that banks have regained their appetite for lending--a key fact for the U.S. economy, which depends heavily on credit availability.

Unsecured Personal Loans and Consumer Health

As important as bank health is to the U.S. economy, the consumer is more important. Over the past decade, consumer spending has accounted for as much as 70 percent of economic growth. Much of this spending was fueled by borrowing, and much of that borrowing was fairly irresponsible.

Recently, consumers have cut down drastically on personal debt. Consumers cut debt by $21.6 billion during July of 2009, an extremely notable statistic in that it indicates a cultural change.

The trend towards less spending fueled by borrowing is probably healthy overall, but could hurt economic recovery if it goes too far and people are afraid to borrow and therefore afraid to spend. This scenario would obviously be highly detrimental to U.S. businesses that cater to consumers.

Big Trends and Individual Borrowers

Watching big trends like bank health and consumer health may not tell the whole story about any individual borrower's ability to obtain an unsecured personal loan. However, all borrowers seeking personal loans draw from the pool of available credit, and that pool comes in different sizes, according to big trends.

 

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.