One of the growing concerns of the US economy in today’s scenario is the problem of credit crunch. Credit crunch is a term which is used to refer to the period of time when loans become difficult to obtain. What this essentially means is that where a majority of the loan applications were approved previously, only half or a lesser number of loan applications will be approved during this period. Currently, the US economy markets are undergoing such a period of credit crunch. This can be attributed to the global inflation of markets and the recession period.
In such a state of credit crunch, the condition of the borrowers becomes bad as the banks are reluctant to lend for fear of bankruptcies or default. This wariness of the bankers or lenders gives rise to increased interest rates thus making the acquisition of loans more expensive and hence more complicated. In the USA, this credit crunch has the most effect on the real estate business where loans are usually applied for a huge sum caused by the high rates of the real estate market. First time buyers and applicants for jumbo loans find it extremely difficult to provide a stable credit history which is required for the high interest rates.
Moreover during such a period of credit crunch, banks stress on a down payment prior to the issue of loans and this makes it even more difficult for applying loans. While hot shot real estate markets of New York and San Francisco are the most affected by this credit crunch with mortgage loans being hard to acquire, places like Sioux Falls are virtually unperturbed by this phase because of the slow growth in the real estate market. This goes on to show that the location of the properties also play an important role in the acquisition of loans.
As a result of such a crunch period, consumers are relying more on their credit cards to help them acquire these loans. This in turn forces the credit card companies to keep constant vigil on the credit card’s activities. With such a situation, the credit limits of the credit card holders tend to go down causing their credit balance to dwindle drastically. Collection agencies are profited by such scenarios and their way of dealing with it is shocking beyond belief. To avoid all this, the credit crunch must be handled effectively by understanding the nuances of the economy and adjusting accordingly.