Is it possible to secure a loan when the economy seems on the verge of bottoming out? We can’t just depend on coronavirus stimulus checks.
With COVID-19 at the forefront of people’s minds and inevitable comparisons with the Great Depression being drawn, does that make it impossible to secure a loan?
Well, if you’re still gainfully employed and you have good credit, you might still get a new loan even given the current economic climate.
Here’s a look at the main types of finance and your likelihood of being accepted or rejected as the pandemic continues to unfold.
Debt Consolidation Loan: Likely
Bruins Capital recognizes that a growing number of Americans have been burdened with debt in 2020 & 2021. If you are one of them, you will likely be considered one of many credit card relief options that promise to help you manage your debt and make the repayment process easier for you. Such options are usually aimed at lowering the interest charges to halt the growth of the existing debt.
Mortgage Loan: Maybe
The reality is, getting a home loan will be tough for many people right now.
That said, it’s certainly not impossible, especially if you have strong credit and cash to use as a down payment.
There’s also been a recent development that could be useful. A recent announcement from the Federal Housing Finance Agency that Freddie Mac and Fannie Mae loans will now enter the federal forbearance program. This means that if borrowers run into trouble making mortgage payments, the government will be stuck with these loans rather than the lenders. Resultantly, lenders will face less risk allowing mortgage servicers to feel more at ease lending homeowners what they need to get on the property ladder.
Home buying is still happening despite negative reports to the contrary, it’s just that the borrowing climate is predictably tougher.
So, lending restrictions are tightening. Recently, JPMorgan Chase raised the minimum acceptable credit score from the 600s up to 700. While Chase offers a DreaMaker grant for lower-income and moderate-income buyers, the minimum score for all other home loans has climbed. Also, unless you qualify for the DreaMaker grant, you’ll now need a 20% minimum down payment rather than just 3.5%.
Now, while for many years a 20% down payment was standard, consumers have become accustomed to much lower requirements. Many lenders, though, are returning to a much higher requirement for down payments.
Home Equity Loan: Improbable
Although it’s possible to get a home equity loan right now, it’s certainly unlikely to be straightforward.
Many banks have already raised the minimum credit score you need to qualify for a home equity loan. At Bank of America, the minimum has increased from 660 to 720 for this type of borrowing. Wells Fargo has hiked credit score minimum to 720, while JPMorgan Chase has completely stopped offering home equity loans.
Auto Loans: Likely
After a shocking March, auto sales increased in April meaning auto dealerships are still lending to some extent.
If your credit is very good, you’ll find plenty of decent deals. Some auto dealers are offering loans at 0% APR over 84 months while plenty of others are promising deep cash discounts.
GM, for example, offers 0% loans for 84 months for some models including most 2020 Buick Envision and Encore models along with 2020 Chevrolet Silverado 1500s and Equinoxes.
With Honda’s new program – Loyalty Purchase Assistance Cash – you’ll get up to $1000 toward purchasing or leasing some new Honda models.
Lenders are also offering deferred initial payments. While this might sound tempting, remember that interest will accrue.
If you have bad credit what can you do?
Well, if you’re still employed, some car dealerships will still find a way to help you secure the finance you need. Whether this will be an attractive loan at the terms you would like is another story.
Small Business Loan: Depends on the Loan Type
Some small business owners benefited from the first rollout of the Payment Protection Plan, while others found the process disastrous.
With some banks being sluggish to release these loans and many larger corporations sucking up loans intended for smaller businesses, things got worse when funding ran dry.
A new wave of funding is well underway and should already be in place by the time of writing.
General business loans
How about general business loans?
As with all lending, the climate is significantly less than ideal.
For business owners, though, the same general rules still apply…
If you’re making money and you have good credit history, you’re quite likely to secure a loan. Conversely, lenders looking at a struggling business will perceive your company as a risk. This means you’ll likely need to shop around and you’re very unlikely to get attractive interest rates.
Student Loans: Extremely High
The federal government is allowing student loan borrowers forbearance on student debt until September 30. This means you won’t be penalized if you don’t make payments during this period.
If you do keep making payments, money goes to the principal rather than the interest, so it pays to keep on meeting payments if you can.
Applying for new student loans, on the other hand, could be awkward.
First, complete the FAFSA (Free Application for Federal Student Aid). This allows you to determine what federal grants or loans you are eligible for. You can then start applying for loans.
Parents might have some initial trouble with the Parent PLUS Loan. Some financial aid offices at colleges have staved off applications until May.
There have nevertheless been no reports of people being rejected en masse for student loans. Also, the emergency cut in interest rates imposed by the Federal Reserve on March 15 brings about the lowest ever rates for student borrowing.
If you were wondering if you could still get a loan during a global pandemic, the answer is, “Yes, absolutely.”
Whether or not you can find finance with the terms you would like, though, is another matter.