Unsecured loans being offered to college-aged consumers
Unsecured loans are the newest concern for young people. Now that credit card companies are in trouble, they are looking for new ways of generating revenue. The recession was a difficult time for everyone, and that includes credit lenders. Companies suddenly had to deal with huge losses as a result of defaulting loans. To mitigate their problems, they increased interest rates and fees. Though companies tried to gain some ground in terms of losses, they ended up going down billions of dollars in revenue.
Young people and lenders
Now that the recession is over, companies are trying to find new ways of bringing in cash. Part of that includes finding and targeting a new market. That new market has been clearly carved out by credit companies, and it is the college-aged students who are now the new generation of borrowers. Credit companies know that this is a good sector to hone in on.
What qualified the new market?
The new market has no credit history and no steady income, so how does that make them the perfect group? Despite those shortcomings, they also have no history of defaulting. In a world where there are millions of defaulting customers to deal with and few ways of recouping the debt, a prospective customer without financial baggage can be enticing. In addition, lenders are focusing on college-aged consumers who have a high income potential. They are hoping that in future years, these are the customers who will have the income to buy high-ticket items and have the resources to pay for them.
Is it good for the consumer?
The question remains, though, whether or not this extended credit to the college-aged borrower is good for them. New studies are showing that recent college graduates leave school with thousands of dollars in unpaid credit card bills, and that trouble early-on carries over to their adult lives. According to a recent study done by Sallie Mae, provider of student loans, a large number of students are relying already on credit cards for their daily lives. The average undergraduate has $3,173 in credit card debt and half of all college students have four or more credit cards.
Unsecured loans are growing in numbers and amounts in society today. Younger and younger people are falling victim to the problem and the future is not showing any signs of improvement. Though the college-aged student has income potential, there is also a bigger picture to look at. They have credit card debt to deal with and once they graduate, they also will have student loans to deal with. That can put a strain on even the top-earners in the most lucrative fields.
There is some education on the way
The Credit Card Accountability, Responsibility and Disclosure Act, or Credit CARD Act, was just signed into effect a few weeks ago, and it aims to help consumers with education. The act looks at the past history of practices credit lenders use to draw in students, without giving them a clear picture of the potential consequences of holding the cards. The CARD Act strives to limit what banks can do to market their loan products to consumers between the ages of 18 and 21. There are also additional restrictions on how they handle college students’ accounts, and in many instances parents have to be involved in credit acceptance for anyone under 21-years of age.
Credit in the future
Credit in the future is going to be monitored more closely by watchdog groups, and that is good news for college students. Though unsecured loans are available, that doesn’t mean they are a good idea. More and more young consumers are learning the hard way that credit, though it can provide financial relief, comes with a high price. Without understanding that high price, they are setting themselves up for future disaster.