Foreign Perspectives

Archive for the ‘Borrowing’ Category

The current economic difficulties are pretty unusual in their severity and therefore what “we” should do is not necessarily the same as what we’d ordinarily do by ourselves.

Typically, it’s prudent to build up some reserves in the bank to tide oneself over the hard times. However, if we all do that in the moment then chances are that the downturn will go on for a great deal longer than it needs to. What’s needed is for each of us to act as though the downturn didn’t exist as much as possible.

So, for instance, the banks have basically been told to return to normal lending practices “or else”. In fact, they need to do that for their own sake as tightening up on the lending criteria as many had been doing was simply acting to stagnate the economy which is good for nobody, including the banks.

From the rest of us what’s required is that we don’t simply bank any savings that we’re making but rather that we spend them and thereby do our bit to restart the economy.

Whilst your instinct might be to increase the size of any savings reserve as much as you are able, it’s the worst thing that we could do collectively.

That’s basically what governments around the world are doing right now when they’re supporting the banking system.

For normal people, borrowing even more to get yourself out of a hole can only be a short term solution and even then it only works if you have something else up your sleeve. Bridging loans are typically successful in this area because you’ve a house for sale on the market and will repay the loan when it’s sold.

It’s also only a short term solution for governments too, albeit the term over which they can get away with it is somewhat longer: typically several years or perhaps a decade. That “something up the sleeve” is mainly tax rises to pay interest on the loans that they’re getting and to start repaying them as well so we can all look forward to significant rises in taxes in the next term of our governments (perhaps even in the current Obama term as he won at a very unfortunate time). Other possibilities are asset sales of course so we can look forward to privatisations on a grand scale in a few years time although the unwinding of the various nationalisations of various banks will also need thought.

The other downer for governments is that borrowing more basically means printing more money which in turn reduces the value of that money which is why exchange rates are all over the place at the moment.

Of course, all this work is dependent on the banks returning to normal loan criteria and everyone spending money to get the economies going again…. not an easy thing to do when things look this bleak.

With the credit squeeze in full force many people are finding it difficult to source short term borrowing when they need it to tide them over to the next paycheck. This is where payday loans come in and, of course, there are more and more of them on offer every day.

In principle they’re fairly simple in that they are:

1. intended to be repaid from your next paycheck (although you can usually roll them over to the one after that);
2. don’t require a credit check;
3. are from around $100 to $1500
4. require you to be in regular employment of at least $1000 (usually for at least the previous three months);
5. require you to have a normal checking or savings account (usually for at least the previous three months); and
6. be over 18

Approval is very fast and even quicker now that online checks can be carried out by the credit company ie no more faxing of documents.

Although payday loan advances are fairly simple, the sheer number of them that are around means that a little guidance is handy and don’t forget that the rules change from time to time too.

Whilst you might think that all interest rates are going down at the moment, don’t just assume that your bank/credit company will be dropping their rates by the headline amount or even at all.

In fact, although the various governments would like the banks to drop rates across the board to get us out of the current mess, many quite simply can’t. Why? Well, regardless of the headline rate, they still need to get money in the door before they can lend it. In some cases, that means offering quite high rates to depositors and therefore those banking organisations dependant on retail deposits (ie the building societies) may find that they can’t drop their lending rates by as much as they might like to.

As always, don’t assume anything and in particular if you’re one of the many people who have both savings and borrowings, check out the best rates for both as it’s very rare to find that the same organisation is offering both the lowest lending rates and the highest deposit rates.

I was leafing through the categories and funnily enough though I write a fair bit about both holidays and finance I don’t think I’ve ever written something that covers both!

So, with the Christmas holiday season coming up, how were you planning on financing the holiday? Christmas is perhaps the worst holiday to finance as you can have a “worst-case” scenario in terms of finance with the potential for both Christmas presents and a foreign holiday which makes for quite a big bill for some people.

In an ideal world, you’d have saved up for it all months in advance, but then this isn’t an ideal world, is it? Therefore many people are looking to borrow money to finance it all.

Fortunately, many people are in the same boat and therefore there are lots of offers of credit around at this time of year. As a rule, avoid store credit for the presents as this is often the most expensive form of credit and instead look towards the banks. If you’ve not used up all the 0% card offers, this is the time to get filling in the appropriate application forms which can get you up to 9 months interest free credit on purchases and, if you’re lucky enough, you might be able to finance both the Christmas presents and the holiday with one of these cards.

One thing to avoid though is the head in the sand approach that many people take. That attitude will almost certainly cost you dear and you’ll end up paying way over the odds for your borrowing. Even if you can’t get 0%, at least check what interest you’re paying on your credit cards and use the one with the lowest rate to buy whatever needs bought.