Personal Finance

If You've Been Denied a Loan in the Last 5 Years, Now Is the Time to Try Again

Now may be the best time to finance big purchases.

One painful consequence of the financial crisis has been ridiculously tight lending standards at banks across the nation. Having your loan denied is a painful experience. It doesn't matter if you're a small business or an individual; it's a difficult rejection to accept either way.

If you've found yourself in that situation in the last few years, don't let that disappointment hold you back now. Now is the time to try again. Here's why.

Banks are finally approving loans

According to a new report by Wells Fargo, bank credit standards today are as loose as they've been since 2006. The report analyzes data from the Federal Reserve's Survey of Senior Loan Officers, and it found that 90% of bank are either easing or keeping credit standards stable for retail loans. In 2008-2010, no respondents reported easing standards, and just 15%-30% reported stable standards.

In other words, it's as easy as ever to qualify. The last time bank standards were changing in this way was in 2006, at the peak of the credit bubble. Five short years ago, 70% to 85% of banks were making it harder to get a loan, while none were making it easier. That ratio today is flipped upside-down, with only 10% of banks tightening their standards.

For commercial loans, this trend is even more pronounced. Over 30% of bank respondents reported easier standards to get a commercial loan today, versus 0% to 5% in the 2008-2010 time period.

If you were one of those individuals or business owners who couldn't get a loan just a few years ago, this report indicates that your chances for success are considerably higher today.

You should strongly consider acting now

The elephant in the room remains today's historically low interest rates. Today, 30-year fixed-rate mortgage loans can still be found for less than 4%. Home equity loans are being quoted between 4% and 5%.

These rates are ridiculously low, and they will not last forever. Eventually, the Federal Reserve will raise its benchmark lending rates. That, in turn, will cause the interest rates for home loans, auto loans, small-business loans, and more to rise in step.

Many analysts expect such a change in monetary policy to happen sometime later this year. Other analysts predict a longer time horizon. The truth is that no one knows when rates will rise -- not even Federal Reserve Chair Janet Yellen. The ever-evolving condition of the economy will dictate when the Fed changes its course.

That said, we can be sure that rates will rise from here. It could be in six months, 18 months, or perhaps sometime in between. We don't know when, but we know it's a certainty.

By securing your loan today, you're eliminating the risk of rising interest rates. Your fixed-rate mortgage loan is guaranteed to be low for as long as you own the house.

Foolish words of wisdom

Taking out a loan can be an empowering and positive financial move. It can also be a huge mistake.

Just because a bank is offering you a new credit card with a high credit limit doesn't mean you should accept it. In the same way, just because you're offered a mortgage much larger than you need doesn't mean you should trade up to that new McMansion.

Make sure you do your own analysis of your personal financial situation and ensure you can actually afford the debt you're considering taking on. Debt can be a useful tool for buying productive, appreciating assets like business investments or a home. But it can be ruinous if used to buy toys or to live beyond your means.

Take advantage of today's relaxed lending standards and low interest rates, but make sure you do so in a prudent and conservative way.

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