Getting a Loan Is Like Trying to Fetch a Bone in a Yard Full of Dogs

Ever felt like the universe was conspiring against you when applying for a loan? Well, honey, it ain’t just you. The bigwigs at the Federal Reserve Bank of New York just gave us some fresh new figures, and they’re not pretty. They’re saying over one in five loan seekers (21.8% if we want to be precise) in the past 12 months till June were denied. Ouch!

That’s like five friends going out for a drink and one of them can’t get in because he forgot his ID. And we’re not talking peanuts here. We’re talking credit cards, mortgages, auto loans – the works! Rejection hasn’t felt this bad in half a decade.

Take a stroll down the memory lane to four months earlier, the rejection rate was milder at 17.3%. The poor souls with credit scores below 680 had it the worst, with a loan refusal spike across all age groups. “Good” credit score? Who’s asking anyway!

Knocking on Every Door and Still, ‘No Loan for You’

Want a sobering fact? Rejection rates climbed in every lending sector in the past year compared to the NY Fed’s February report:

• Auto loans: 14.2% (say hello to a hike of 5.1 percentage points)
• Credit cards: 21.5% (hoisted by 2.8 percentage points)
• Credit card limit increases: 30.7% (up, but only slightly by 0.9 percentage points)
• Mortgages: 13.2% (kicked upstairs by 3.2 percentage points)
• Mortgage refinances: 20.8% (ascended by 4.5 percentage points)

Find the truth painful? Then you probably understand the term ‘credit crunch’. Our financial gurus use it when loans are as rare as hen’s teeth and dearer than ever due to economic conditions. The peanut to penny-pincher transition, ever heard of it?

Why’s the Loan Fairy Being Stingy?

Here’s a hint: money’s not growing on trees, or native Fed if you like. They’ve been bumping up interest rates over the past year, playing whack-a-mole with record-high inflation. And who pays the price when the banks find it costlier to borrow from each other? We, the everyday folks with dreams of loans and mortgages!

Throw in a pinch of banking turmoil – I’m talking Silicon Valley Bank and Signature Bank going belly-up in March – and you’ve got the perfect storm. Banks triggered their survival instincts by holding on to their cash like their financial lives depended on it – because it did!

So what does this mean for us mortals? It’s safe to say they’re putting hopeful lenders under microscope, being extra choosy, and likely playing hardball with credit scores, interest rates, and credit limits.

Loan Gatekeepers Putting Up Walls

April Fed survey data already hinted at the tough-love approach banks would take. About a quarter confessed they’re not as eager as before to offer consumer installment loans like auto loans. And about a third cogitated they’ve been moving the goalposts for new credit card applications – raising the bar, so to speak.

Related Reads You’ll Appreciate:

• [A ‘Credit Crunch’ Looms Large: Impact on Your Wallet](/credit-crunch-affects-loans-interest-rates/)
• [Buying a House With Bad Credit: A Guide for The Optimist](/how-to-buy-a-house-with-bad-credit/)
• [Getting Older and Colder: The Less Likely You’ll Get a Mortgage](/older-mortgage-applicants-rejected/)

In a nutshell, the door to easy credit seems to be closing, creating a steep hill for loan seekers to climb. Brace yourselves! It might be a wise move to give your financial profile a bit of toning up before asking for a next loan. Because the tides are changing, and we need to swim, not sink.