News & Resources

Big item borrowing a good sign for short term lending outlets

Oct 16, 2013 Sean Albert

Across the United States, consumers have been adjusting their spending habits as a result of the economic downturn of recent years. Now, consumers are starting to more closely monitor their spending and debt levels as they look to take better control of their financial futures.

On the surface, this trend does not appear to be advantageous for short term lending professionals and other major credit providers. However, a more frugal base of borrowers could actually strengthen the outlook for loan enterprises.

The Wall Street Journal reported that a new behavioral dynamic is emerging among America's consumers. Purchasers in the U.S. are deciding to cut back on daily spending in stores and restaurants but have increased the acquisition of vehicles and homes. This may indicate that consumers are starting to take proactive steps to secure their finances so they are able to make major buys that can help them build positive equity.

With consumers controlling their expenditures more closely, lenders may be better positioned to extend credit to loan applicants who may have been consider risky borrowers during the Great Recession. Now, increased financial responsibility among Americans could mitigate the challenges many lenders are required to deal with when making subprime loans. Potentially, this emerging borrower model can create a positive lending environment for both financial institutions and the millions of underbanked American consumers that have typically been limited in their borrowing options.

Positive trends maintained
Although it is difficult to determine if this dynamic is sustainable, it's certainly an optimistic development for lending outlets across the country. A more responsible base of consumers will only aid the fortunes of banks and alternative lenders.

The most recent lending numbers released by the Federal Reserve suggest that the trend will continue. Bloomberg reported that non-revolving credit lines in the U.S. spiked by $14.5 billion in August, following growth of $12.2 billion the previous month. Included in non-revolving credit are vehicle and student loans, showing that Americans are focusing on making positive, long-term investments.

In order to maintain this healthy lending activity, financial institutions need to ensure that they are doing all they can to serve customers. They should take a proactive approach to service, interacting closely with their clients to determine what modern trends are impacting their borrowing habits. Then, lenders can create products tailored to the needs of today's consumers.