More Banks Returning To Short Term Lending Markets To Capitalize On Margins

Once upon a time when Americans needed cash they didn’t turn to their credit card, nor did they turn to home loans. Payday lenders did not exist in this wonderful era either so people did not turn to these predatory lenders since they didn’t exist in this time. Indeed for much of the last century Americans simply went to their local bank and applied for a personal loan. In most cases they were approved.

Yet come the 1990s banks realized that home equity loans were a much more lucrative business venture. Banks quit advertising personal loans around this time. People began to forgot about personal loans instead flocking to high interest credit cards which had become the new fad and also making use of home equity loans. While the personal loan market did not die out if did greatly decline.

Everything old becomes new again given time. The same holds true for personal loans. Personal loans are seeing a come back, indeed a resurgence in recent times. Big banks are once again starting to advertise personal loans, including Wells Fargo, Discover Financial, Citi and in a surprise move so did did CapitalOne announce the offering of personal loans.

Capital one does not list amounts they will lend, instead they send customers offers who are pre-approved. I expect they will change this rather poor business model in the near future.

Wells Fargo is leading the pack here, offering personal loans in amounts from $3,000 to $100,000 and with terms of 1 year to 5 years.

Citibank is offering personal loans as low as $300 which will help millions of americans trapped in the payday lending cycle. Citibank offers personal loans as high as $7500
.

Another new comer to the personal loan market is Discover financial which is lending consumers up to $25,000 with terms between 1 years and 5 years.

Other banks joining this list include the following:

Associated Bank
Citizens Bank
First Fidelity Bank
Hancock Bank
Key Bank
T.D. Bank
Union Bank
Zions Bank

Personal loans are much more attractive then using credit cards when you need a large amount of money. If you had $10,000 in credit card debt and a $10,000 personal loan, it is 99% likely that the personal loan will be cheaper than the credit card debt. it is not uncommon to get a personal loan for under 10% interest while most credit cards are 15% or higher interest rates, although there are some between 9% and 12.5% fixed rated you usually need stellar credit to obtain one of these credit cards. Personal loans do not have account fees or yearly fees, once you pay the loan off you are done. They also help you to build up your credit rating.

Given this fact it is often far better to go for a personal loan instead of racking up the charge card. Personal loans are also better than taking out a home equity loan, taking out a second mortgage or car title loan simply because your assets stay protected since personal loans are often signature loans. Signature loans do not require any collateral just your signature and promise to pay back the bank.

The only thing I advise people to do is to carefully consider the long term consequences of taking out any loan. You should read the fine print of your loan, know the contract inside and out, such as if there are any balloon payments due at the end of the loan or if the bank can sell your loan to a 3rd party. Lastly you need to consider the effect of the loans repayment on your finances, since you will have this loan between one and five years.

Scott Wilson covers finance and investing for the Tribune Journal.

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