Whatever the cause, when these lenders find
that they are in debt, they are far less willing to provide loans to
This usually results in:
- The only people that can get loans are in the upper tier
of credit scores.- Interest rates increase considerably, and loan amounts
drop at a similar rate, regardless of collateral.
- Fees can jump as well, even by reputable companies
(normally, reputable companies will not have fees).
With lenders short on money to finance others, even
individuals with great credit may be forced to take a loan with a higher
interest rate than they deserve, simply because credit is so difficult to
How Does This Affect You?
The affects on individuals are twofold. First, even if you
have a high credit score that would normally qualify for any loan, you may
have problems finding any lender that is willing to take the risk with you.
A 700 credit rating starts to look like a 550 credit score to these
companies, and although some may be willing to take the risk, they may do so
at absurdly high rates.
Similarly, interest rates are far higher making the cost of
the loan much higher than it would be normally. And loan amounts are going
down, meaning that it may be difficult for you to get the full loan amount
you need to make whatever payment needs to be made.
Credit crunches often cause people to foreclose or liquidate
their property because they make it far harder for home and business owners
to make their payments. Overall, their effect on the economy is such that a
credit crunch affects even those that are not in need of a loan.
With the current credit crunch , it
is important to save as much money as you can, and if the interest rates
drop you will want to immediately refinance and consolidate your loans at a
lower interest rate.