Should Subprime Loans Be Banned?
The news has been full of discussion about the recession. You can't help but have heard the words 'subprime loans' flying around the airwaves and stamped all over the newspapers. Many of the world's leading economic analysts have pointed at them for being one of the causes of the recession itself. So what are they? And if they helped to cause the recession, should they be banned?
Subprime Loans
There are two types of loans. Firstly there are prime loans and mortgages which are aimed at those who have an excellent credit rating and who are very likely to be able to pay off their loans with ease. Subprime loans and mortgages were instead invented for borrowers with bad credit history and a higher risk of defaulting on their loans.
Because of the greater risks involved to the mortgage companies that offer these loans they charge higher interest rates than the prime loans. Most subprime lenders aren't banks and this allows them to act outside of the tight regulatory controls and close scrutiny that banks are subjected to. This in some instances has led to malpractice and the lending of money to some borrowers who had no chance of paying off their debts. Because of this buccaneering style of lending undertaken by some subprime mortgage companies the whole financial industry has suffered - and the economy of the country with it.
What is the Future for Subprime Loans?
Because of their huge effect on the economy of late - for the most part negatively - there has been a lot of discussion about the future of the subprime loan industry. The truth of the matter is that though the industry has not been regulated as closely as it should have been, subprime loans provide an essential service for those people who have bad credit histories. Subprime loans allow those people to take out home mortgages and rebuild their credit rating at the same time.
However, they are not the best option for everybody and she be entered with all the care and diligence one would expect from such a hefty financial commitment. It must always remain at the front of your mind if you do take out a subprime loan that the rate of interest that you are paying on your mortgage could be substantially higher than those who are taking out the same loan but with a prime lending company. It would serve you well to sit down with a professional mortgage adviser and carefully review your situation. Getting an up to date copy of your credit rating is also a very good idea. You are entitled to this once every year and it is an excellent tool for giving you a clear picture of your financial position.
Should Subprime Loans be Banned?
This is a tricky question but the yes or no answer is a resounding no. Although it is true that the subprime lenders have been handing out loans and home mortgages in a foolish manner that has made everyone worse off there is no reason to throw the baby out with the bath water. There are people out there who do not have the best credit ratings or financial histories, but who could take out a loan with a subprime company and have no problem paying it off. Surely it is not necessary to have had a perfect financial past to be afforded the right to own a home.
Indeed it would be tremendously detrimental to the economy as a whole if a huge subsection of society was denied the right to get onto the property ladder. The intelligent solution for all concerned is to tighten up the regulations surrounding the subprime loaning industry, making mortgage companies much more accountable.