Sep 28, 2013 Walt Wojciechowski
Despite a solid rebound, the United States economy is still showing signs that it's not where it needs to be. In particular, consumer confidence levels appear to be lagging, which could complicate operations for short term lending outlets and other loan providers.
The Associated Press recently reported that the Conference Board's latest consumer confidence index fell to 79.7 for September. That was a slight drop from the August reading of 81.8.
In June, economists and business leaders were happy to see the index hit 82.1, which was the highest mark recorded in more than five years. The AP indicated that the current drop off is minimal and is hardly cause for alarm. However, the source did stress that confidence levels have yet to surpass the 90 point mark, an indicator of a healthy economy.
It shows that more consumers are still holding back when it comes to spending, as they are not sure that their financial futures are assured. For lenders, this can be especially challenging because consumers are less likely to take out additional lines of credit during lean periods.
Even with jobs being created and other economic indicators providing solid proof of a strengthening economy, consumers are still weary of making heavy investments, a negative byproduct of the Great Recession.
To combat this, short term lenders and other financial institutions need to revamp their loan strategies. In particular, they need to find better ways to serve all clients from consumers to small business owners. Working closely with subprime customers is a great first step to take.
These underserved individuals represent a massive opportunity for lenders to create long term clients. Loan agents should be encouraged to discuss the personal or business finances with subprime borrowers to help them understand how they can increase their credit scores and establish a stable base of assets. This responsible approach will show consumers that their financial stability is valued by the lender, which can go a long way to building loyalty.
According to Bloomberg, many auto loan firms have been increasing their subprime credit extension this year. The source reported that the loan-to-value ration for subprime auto loans has increased since 2010, an indication that many lenders are starting to return to the practice.
Although these loans are often noted for being dangerous for lenders, many financial service providers offer resources that can help lenders mitigate the risks associated with subprime lending. Working with such an organization will enable credit providers to safely return to the subprime market.