Obtaining Credit In A Bad Economy

Businesses and markets go in cycles. In tough economic times, people lose their jobs, spending decreases and businesses start slowing down. All of a sudden, banks find it a little more risky to lend, and those who want a loan find it harder to get approved. Fortunately, banks don't stop lending altogether, and there are some steps potential borrowers can take to increase the chances of getting a loan. There is one disclaimer: most of the banks' interests are aligned with yours. If a bank think it's too risky to provide you with a loan, then it is probably not a good idea for you to get one. With that out of the way let's get into it.

The bank isn't going to give you a cent if you don't have the means to pay it back later (or if you don't have enough assets for the bank to get its money back). That's why banks look at a few key things about your financials; collateral is one of them. What major assets do you have that the bank can seize if you default on your loan? Typical collateral includes your home or your car. This will also take into consideration what you are using the borrowed funds for, such as a house, which would act as collateral for the mortgage loan.

Right or wrong, the lender will use biases and preconceptions in determining whether you're a good risk for the institution to take on. Also, don't be surprised if the bank does a background check on you. Since it's the bank's money you'll be using, it's also the bank's business as to what you're planning on doing with it. If you need a bank loan to fund your gambling habit, chances are you won't be getting much in the way of financing. If, however, you're trying to purchase or improve an asset like a home or business, banks usually see this as a point in your favor. (Also see How To Read Loan And Credit Card Agreements.)

These days, there are alternatives to getting a loan from a traditional bank. Online lending is quickly becoming a popular option because of higher online competition and quicker loan approval. With online lenders, you can explore your options, but it becomes harder to explain that you are not as risky as your numbers are saying. Borrowing online also puts you at a higher risk for fraud. Always make sure that you're only dealing with reputable companies when it comes to your private information. (For related reading, see Keep Your Financial Data Safe Online.)