Banks Give Out Loans to Borrowers with Poor Credit Again

Jessica Silver-Greenberg and Tara Siegel Bernard, both from The New York Times, said that banks are beginning to improve again. As a result, lenders such as Capital One and GM Financial are trying to lend money to borrowers with poor credit. Not only are banks giving out loans, but also credit cards.

In addition, based on a report from Experian, Silver-Greenberg and Siegel Bernard said that 1.1 million worth of card were given to borrowers with poor credit last December and this was an increase of 12.3% from last year. These borrowers comprise 23% of car loans in Q4 of 2011, which increased from 17% in 2009.

According to The Times, investors picked up $11.7 billion last year in car loan securities, which increased from $12.7 billion in the year 2008. The Times was told by the GM’s risk manager that car lenders can handle the risk at the same time with lending money to those with bad credit.

The higher credit card lending is not encouraging as well. This is because credit card spending increased by 9.5 to 13 percent last year with credit cards like Visa, Mastercard, and American Express despite the fewer consumers who own those cards. Bloomberg’s Elizbeth Ordy said that credit and debit card holders use their cards more even though prepaid cards are becoming more popular.

Also, Ordy added that costumers’ credit card spending increased by 5.7% during the month of March compared to that of last year, as said by First Data Corp.

However, the figures are not that accurate. Moreover, Experian cannot separate the debts and spending into those made by borrowers with poor credit and those made by the borrowers who have lots of money.

It seems that this is all positive. Silver-Greenberg and Siegel Bernard emphasize that subprime lending indicates that the economy is recovering, that consumers have been paying loans, and that unpaid car loans and credit cards are not that many anymore.

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