Lending during lean times requires service, innovation
Oct 15, 2013 Walt Wojciechowski
When consumer confidence starts to drop, it can be difficult for lenders to keep borrowing rates at reasonable levels. This issue affects loan outlets of all types, from banks and credit unions to short term lending enterprises.
There are a number of reasons why lenders can see business decline. General economic downturns such as the recent Great Recession can make borrowers cautious to take out credit lines, as can low levels of consumer confidence. Even if economic conditions are solid or improving, a number of factors can erode positive sentiment among buyers.
Current events provide a prime example of how a growing economy can be stymied by certain developments. Although lending levels have been improving, particularly for auto financiers, the recent shutdown of the United States federal government has hurt consumer confidence. According to the Thomson Reuters/University of Michigan's consumer sentiment index, the overall reading fell to 75.2 in October. The source noted that it marked a nine-month low and was likely a result of the absence of a federal budget.
What's more worrying for lenders is that officials are unsure how long the shutdown will last. Market uncertainty is especially concerning because consumers affected by the shutdown are more likely to keep a closer eye on their finances because it could be months before they are back at work. This can have a negative impact on retailers and lenders due to the lack of economic activity.
Traditional practices adapted
How to approach this period is especially challenging for bankers and lenders across the country. Drumming up additional business during such times is never easy but it is possible. By increasing customer service efforts and offering innovative rates and loan products, lending outlets can tailor loans to the needs of consumers who may be struggling to cope with the budget debacle.
Although traditional lending models should not be abandoned, industry professionals need to think outside the box to create attractive loans that are applicable for the current market. How these loans are formulated may depend on the needs of specific consumers. For this reason, it's important for lenders to build closer relationships with clients to determine how the market is affecting their borrowing habits. Then, banks and short term outlets can take the necessary steps to improve their models.
Fortunately, American lending organizations are used to adapting their practices. According to Forbes, new regulations that resulted from the Great Recession forced banks and credit providers to change their procedures to more closely analyze loan applications.