More and more people are deciding to borrow. The statistics show that the level of personal debt is rising at among the highest rates in the world. This is occurring as more and more people are asking themselves, why wait for the things you want when you can have them now and pay for them later. Not only is this fuelling economic growth, but also giving people more options. It is also a matter of concern to some who fear that consumers will not be able to afford the huge amounts of debt that are being racked up and this is one of the major reasons why the government is worried about the state of the economy, we just keep on living beyond our means and continue to borrow.
What Makes Us Borrow?
The factors that are allowing people to borrow more and more are generally identified as the increase in house values, and expected increases in income. Many people are confident enough to continue borrowing because they know that all this debt is backed up by the increasing value of their home. This is also what they secure the loans against. This kind of debt is very safe from the point of view of lenders, who have their loans fully secured and also borrowers, who can get very attractive conditions and low interest rates on their credit because it is so secure.
What Happens If My Home Loses Value?
However, as most debt is secured against homes this also makes a fragile financial environment for our debt. However unlikely that events may come to pass, house prices could fall leaving many home owners that have secured their loan against their property in a financial mess. The bank or lending institutions would be less likely to negotiate with non payment of loans, panic and then call in debts against those who miss payments more quickly than if the economy was still as vibrant.
Borrowing For The Future
The other factors that are allowing consumers to continue to borrow is their age, optimism and future prospects. The population has a young and well educated work force many of whom have good future prospects. Banks are very willing to lend to university and young professionals on an unsecured basis due to the faith they all place in the future earnings of these borrowers. The logic is that because of their rising income, these borrowers can afford more debt.
It is also good banking policy to keep these ‘educated’ customers happy and a lifetime of banking may ensue, earning the financial institutions not only profit with the original loan but also the customer’s banking loyalty for life.
The Effects and Benefits of a Personal Loan
These loans therefore seem to be benefiting both lenders and borrowers. The lenders are happy because they have a good supply of borrowers who have good prospects of repaying the loans. From the borrowers point of view, the loans allow them to make investments now, in the things that they will be able to afford later. This allows them to take advantage of the higher earnings and higher house values that they are experiencing. With evidence showing that much of this borrowing is going towards funding home improvements, further education, and business start ups, it would appear that much of what is being borrowed is wisely being invested. It makes sense therefore, in many instances, to take advantage of cheaper credit that is available now and use it to invest in the future, but the overriding factor is be careful!
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