IMPACT OF THE CREDIT CRUNCH ON BORROWERS 

Most borrowers are facing a lot of trouble keeping up with payments and most of them have experienced a lot of harassments from their lenders. More and more investments banks are suddenly tightening the conditions required to obtain a loan from them.  

Credit crunch is caused by a continuous period of careless and most times inappropriate lending of money which often results in losses for banks or lending organisations and investors in debt when the loans suddenly turn sour. That is why most banks and lending institutions have reduced the availability of credit facilities, and have therefore increased the cost of assessing loans by raising interest rates.  

Borrowers will likely face the following problems: 

(1)   HIGHER TAXES 

The economy is in pretty bad shape and this might lead to higher taxes and inflation (especially in the UK), according to Nadeem Walayat, “the shortfall in growth will result in higher taxes and inflation as the UK government seeks to fill the gap between ambitious government spending plans and shortfall in tax revenues.” 

(2)   MORTGAGE 

The mortgage sector has really suffered a huge blow due to the credit crunch and even borrowers with good credit history are not spared from undergoing strict lending procedures. Variable mortgage rates have shot up because of the global financial crisis; it is a pity that the days of easy mortgage credit has gone to return only goodness knows when. The mortgage rates are just too high for some borrowers to pay so they choose to rent instead.   

(3)   CREDIT CARD TRAP 

The credit crunch has not stopped some borrowers from accumulating debts. What most borrowers fail to understand is that the more they borrow, the more they plunge further into debt because interest rates on credit cards are quite high (15% to 20%) compared to saving up to buy the things they need. The continuous use of credit cards is thought to bring about the next credit crunch in the credit card market because most people have maxed out their credit cards especially during festive seasons and are unable to meet up with payments because they do not earn enough to cover the cost of all their purchases (talk about living above your means). 

Many financial institutions are currently refusing credit card applications of young people between the ages of 24 to 35 years. 

(4)   HOME OWNERS SADDLED WITH DEBT  

Many home owners are saddled with mortgage debt up to the tune of trillion of dollars because of the high interest rates on mortgages. Inflation has also added to the many worries of borrowers, because the costs of energy and council tax bills have risen and many homes may be repossessed and their owners kicked out of their homes. According to the Market Oracle, it is estimated that repossession will be 100% because borrowers are taking more and more loans to 

pay off outstanding debts therefore plunging them further into debt.  

Research has shown that more banks are suffering growing losses because most borrowers are unable to repay back loans even with the bank’s strict credit procedures for acquiring loans.