Consumers Failed by Credit Cards
Payday Loans Prove Reliable in an Economy that Isn’t
The best thing about payday loans is that they are reliable. Post-recession, many people are finding the world of credit just isn’t what it used to be. The past year saw consumers rethink using credit to make purchases, as they had done in the past. Recessions inexorably lead to less discretionary spending, and this one is no exception. That’s bad news for credit card companies whose business is predicated on consumer spending.
Recently, Fitch Ratings reported that income of U.S. credit card companies will “continue suffering because of the lousy labor market, bankruptcies and bad loans.” They also cite that the unemployment rate over 10% is expected to last for most of 2010. “As a result [of the unemployment rate], the losses of credit card issuers could worsen further,” they stated.
The Consumer’s Relationship with Credit
Consumers have had a good relationship with credit card companies over the past few decades. Though it was ideally to benefit card companies, consumers were able to make purchases they couldn’t have made without it. The credit card companies have become lackadaisical, however. According to Justin May, an economic analyst for Fitch, “Lending companies were like fat and happy old men thinking their feast would last forever… What they didn’t realize was that nothing lasts forever. Even their bread and butter.”
From 2006 to 2007, credit companies were handing out credit left and right. They didn’t study an applicant’s history or present situation, never mind if they were able to repay the debt. After so much credit was extended, and little return was realized, credit card companies found that they were in dire straits. The companies had little recourse once the recession hit its peak because people simply could not afford to pay their debt. Many people fell into foreclosure, bankruptcy or just ignored their financial commitments. All three had negative impacts on credit card companies, that had previously had strong ties with consumer markets. Suddenly, consumers in need of quick cash started looking to payday loans, friends and family and other alternative ways of finding funding. Consumers in need weren’t seeing credit companies as the only viable option anymore.
What the Recession Has Taught Us
Now that the recession is officially deemed “over,” there are some lasting concerns. Credit card companies are still reeling and writing off huge debts. It’s estimated that there is about $ 3.5 billion in debt that companies admit they probably will never see. Consumers are still hard pressed to find available funds. The market might have stabilized to some degree, but many purse strings remain tight as a drum. People aren’t running out to use what little credit they have and credit companies aren’t extending new credit. A lot of people have less desirable credit reports and can’t qualify under lender policies, which have tightened. May continued, “Credit card companies don’t want to risk any more than they have to and aren’t extending credit to those who need it. Though that is what they have been accused of doing for years, if they don’t extend credit soon, they won’t have a business.”
In the end, it will be up to the consumer to get the market rolling at full-steam once again. Though family lending and alternative credit sources, like payday loans, have proven as more resilient and reliable options than credit cards, but they’ll hopefully change their ways. Lending companies are hopeful that people will start using available credit and get the industry back on it’s feet.
Comments
Leave a Reply
Here’s How You Can Boost Your Credit Score By 135 Points Or More In Just 37 Days
Discover how to DELETE 30, 60, 90, 120, and even 150 day late-pays from your credit report virtually overnight!
Click Here for
Your risk free trial!
