Cheap car loans have become a norm in almost every capitalist society. Britain doesn’t lag very far behind. Car loans are readily available in every city or district. Many believe that cheap car loans will revive the economy. However, many fear the antipode.
Cheap car loans are becoming increasingly popular across the UK. Who doesn’t want to drive their car? It is better than waiting in long queues for a subway ticket. With almost everyone possessing a personal car, will that cause the next crash?
Are cheap car loans a potential threat?
Cheap car loans are being financed to at least 80% of car buyers. A small fraction, 3% is being given by subprime lenders. That’s where the danger begins. The sub-prime lenders tend to give load without checking the loaner’s credit statement. This fact is a cause of interest to the Bank of England. However, 3% is too small a figure to worry about. Many tend to disagree. Economists believe that an increase in lending will increase the interest rate. This, they say, will trigger a macro economic cycle that may prove to be disastrous. Higher interest rate means an increase in the cost of borrowing. That results in firm’s firing people, hence unemployment.
Cheap car loans are being compared to cheap house mortgages in 2008. The Global Financial Crisis in 2008 was a result of cheap house loans. Despite this, many pundits believe that 2017 is nothing like 2008. The government lagged behind in information; this isn’t the case in 2017. The Central Bank had lowered the interest rate in 2008; the present situation is different.
Cheap car loans may be a profitable strategy in the short run. However, for the long run, the government needs to focus on its fiscal policy. Despite the fact that cheap car loans benefit the economy. The government should remain vigilant.