Do we really expect a new consumer bubble?
Not long ago the Federal Reserve Bank of New York reported an increase in household indebtedness equal to $117 billion. Many of the individuals think it’s due to the fact the consumers gain confidence and feel some solid ground under their feet at present.
Still not everybody shares this opinion.
Freddie Mac, for example, made its subcontractors to be quick in modifying mortgages it had restructured before. The same is expected from Fannie Mae, as the going up interest rates may compromise the loans soon to be resetting.
The same report mentions the growing instability of auto, student and credit card debts. The defaults in the unsecured business loan market have the same tendency.
The main question is why there are so many defaults on the loans now, when the wages are reported to rise and inflation to increase half that pace.
Most likely the answer lies somewhere on the dark side of finance, when creative payment structuring is only used to make consumers believe they get what they want.
Just look at the following examples.
Are you aware that ARMs were designed to save means for banks and reduce their risk as well? Actually, there is no notion of a “fixed rate” as it is in a dynamic market. In case the interest rates headed over time in various ways, it just means the borrower covers the additional cost of that financial certainty; the risk is simply shifted to the consumer.
The Adjustable-Rate Mortgages are offered by real estate sellers and agents to make the buyers pay more for the purchased property than they planned. Here is the dark side of the finances. Even if the loan rates are at historic lows as it is now, you’d better still choose the fixed-rate mortgage loan. There are cases when people make up their mind to take ARM intending to sell the house before the first reset. However, you should remember there’s nothing so permanent as temporary.
Extended Repayment Terms
Car loan providers have already started to offer the 7 years financing. Actually, it does not look like motivation to provide more affordable vehicles (also read how to renew the car car insurance policy), but to make them costlier and consequently to make the consumers pay more.
In case you purchase a car and use it until it disintegrates and paying a sensitive amount in fees and interest rates is not a problem for you, please proceed. However, if your intention is to get rid of the car before the term of the loan comes to an end, do not let yourself be tricked. The moment will come, when your property will cost less than you’ll have to cover to sell it. Most likely the dealer will still be found and the lender as well, but things will be tough.
In course of the time we have become conditioned to take loans for our big-ticket purchases. To avoid problems, you should negotiate loan terms, conditions and structures and be extremely disciplined, otherwise do not take risks.