Lenders going on the defensive over loans

The Record (Hackensack N.J.) (MCT) - Credit cards are tougher to get, even if you have a pretty good credit score. New car financing is harder to obtain. And don't even think about auto leasing.

The financial crisis is increasingly being felt by consumers across the nation as leery lenders make it tough on would-be borrowers.

"Now lenders are looking for reasons to reject people," said Greg McBride, senior financial analyst at Bankrate.com. "In the past, they were looking for reasons to accept people. When times are good, and everyone is paying bills on time, lenders can play offense. But when unemployment rates start to rise and defaults begin to climb, lenders go on defense."

That makes life difficult for consumers and businesses that rely on ready access to credit, such as auto dealers.

"I can't say we've lost any sales yet, but we have worked harder to obtain credit for these people," said Adam Mularchzyk, chief executive officer and general manger of Ken Smith Lincoln-Mercury in Ridgewood, N.J.

"If you have a very good credit score, there shouldn't be a problem in financing a car," Mularchzyk said. "If (your score) is on the second level, it's going to be harder. If it's subprime, forget it."

The difficulty in obtaining credit isn't limited to financing a car. The squeeze is on for almost every type of financing, from home mortgages to home-repair loans to credit cards.

It all depends on your credit histories, as reflected in your FICO score (for Fair Isaac Corp., the company that developed the standard rating system).

Nowhere is the crunch greater than at auto dealerships, said Jim Appleton, president of the New Jersey Coalition of Automotive Retailers in Trenton.

"Demand is down for new vehicles (due to) flagging consumer confidence and concern about the economy, so people aren't going as frequently to the dealerships as they have in the past," he said.

With many banks pulling out of the leasing business, "consumers coming through the door with a lease expired have fewer options and more expensive options, whether looking to lease or a purchase," he said.

Financing is still available, "but you have to have a score," said Gene Meyers, who owns dealerships in New Jersey. "There are a lot of banks out there that want your business in purchasing, but not in leasing."

Part of the problem is that manufacturers got greedy in their attempt to move more vehicles, so they lowered monthly payments and left large residual payments for someone wishing to buy the car when the lease ran out, Mularchzyk said.

"They stopped selling cars, and started selling payments," he said.

Adjusting residual values means either higher monthly payments for those who continue to lease vehicles and smaller profits for dealers who are forced to eat the increase, he said.

Higher borrowing standards can also hurt homeowners seeking home-improvement loans or home-equity lines of credit.

"What has changed (in recent monthsÂľ is that lenders want borrowers to retain some skin in the game, to retain some equity stake," McBride said.

"No longer can you borrow every last dollar of equity you have. For the best terms, they look for you to retain a 20 percent equity stake in the property."

As a result, for consumers who have been living in a house for a number of years, the terms are a lot better now than a year ago because interest rates are a lot better, he said.

"If you have good credit, proof of income and money for a down payment, credit is available."

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