Finance for Your Customers in 2024

Welcome to this in-depth look at how you can best approach financing for your customers in the coming year. The financial landscape continues to shift rapidly, so staying informed will help you navigate changes and optimize opportunities to support your clients. Let’s dive into the key areas you should focus on to make well-informed decisions heading into 2024.

Economic Outlook

Understanding the broader economic environment provides important context as you plan your financing strategies. Several forecasts anticipate ongoing inflation and rising interest rates through at least mid-2023 before potentially moderating. This inflationary pressure is causing the Federal Reserve to take aggressive measures to cool demand by steadily increasing interest rates. While intended to tame inflation, higher rates also risk slowing economic growth or tipping the economy into recession. Most analysts predict GDP growth will remain positive but moderate to around 1-2% in 2024. You’ll want to monitor several economic indicators:

  • Inflation – Currently around 8-9% annually but expected to gradually decrease as monetary tightening takes effect. 
  • Unemployment – is currently low at 3.5% but could rise modestly if a recession occurs. Job market strength supports continued consumer demand.
  • Interest rates – The Fed funds rate has risen to 3-3.25%, with more hikes anticipated. Consumer loan rates like credit cards and auto loans will continue tracking upward from the current 5-7% range. Mortgage rates recently topped 7% for 30-year fixed loans.

Paying close attention to inflation, unemployment, GDP growth, and interest rate movements will help you understand fluctuations in your customer’s purchasing power and ability to take on new financing. Adjusting programs and underwriting criteria accordingly can help optimize approvals while balancing risks.

Underwriting Trends

With inflation eroding household budgets and interest rates on the rise, lenders across the board will be more cautious in 2024 when assessing borrower creditworthiness and ability to repay. Underwriting standards that were relaxed during low rate periods are tightening again. Some key loan qualification trends to guide your customers’ financing needs include:

Higher credit score and debt-to-income requirements – Both factors play a large role in assessing repayment risk. Good credit in the mid-700s or higher will provide the best access to financing options. Total debt load relative to pre-tax income should remain below 43-45% for most loans.

Emphasis on steady, verifiable income – With economic uncertainty, lenders want clear proof of regular earnings to continue making payments. Self-employed borrowers may face additional documentation demands. Side jobs or seasonal incomes face greater scrutiny.

Shorter term loans preferred – To mitigate inflation and interest rate risks, auto loans are shortening from the usual 72-84 month terms to 48-60 months maximum. Mortgages shift more to 15-year versus 30-year amortization.

Higher down payment amounts – Down payments above 20% of a home’s purchase price can help offset higher rates and demonstrate financial strength. Vehicle financing may require 10-20%, down from typical 0-5% levels in recent years.

Communicating these tighter lending standards to your clients early allows time to boost credit profiles or save more for large purchases before applying for financing in 2024. Managing expectations is key given the challenges some may face qualifying for loans.

Top Financing Options

While the selection of financing products available to your customers remains extensive, some options will prove more appealing than others based on economic conditions. Here are a few that warrant special focus:

Low-Interest Credit Cards

With the prime rate rising, many credit cards have hiked their variable APRs upwards of 20%. However, some issuers still offer 0% introductory rates on purchases or balance transfers for 12-18 months. For customers with solid credit, a low-interest card allows flexible financing of mid-sized expenses. Just be sure to fully pay off balances before promotional rates expire to avoid high ongoing interest charges.

Auto Loans

While vehicle financing rates have crept up from recent lows, they still hover in the mid-single digits for well-qualified buyers. The reliability and long-term cost savings of buying instead of leasing make loans an essential financing tool. With reduced terms becoming standard, explore 60-month options over longer terms that extend high monthly payments.

Personal Loans

Unsecured personal loans offer a simple, standardized process for customers consolidating other higher-rate debts or funding large emergency expenses. Rates range from 6-9% but stay fixed, so payments do not rise over the 2-5 year terms. Just beware that these loans require good credit to access the most competitive rates.

Mortgage Refinancing

Although rate hikes pushed 30-year fixed loan rates above 7%, refinancing can still potentially save money if customers obtain a rate 1.75-2% lower. Refis may allow consolidating multiple debts at a lower blended rate too. Closing costs are worth funding if savings outweigh fees within 2-3 years. Monitor rates and recommend refinancing window opportunities accordingly.

By walking customers through these options based on their specific needs and credit profiles, you can connect them with financing solutions that meet both short-term budgetary goals and long-term household financial health heading into 2024. Flexible products will prove particularly valuable, given economic uncertainties.

Lending Landscape Changes

Staying ahead of shifts occurring within the lending landscape helps you adapt programs and recommendations for clients. Here are some notable developments to monitor:

Fintech Competition Ramps Up

Digital lenders like LendingClub have existed for over a decade but have seen huge growth in the past two years. Now traditional banks are catching up through new digital channels, services, and alternative data used in underwriting. Greater competition means more financing choices for customers but also tighter standards industry-wide.

Residential Mortgage Rules Evolve

The CFPB may issue revised Qualified Mortgage and Ability-to-Repay rules that govern lending practices and compliance responsibilities. Already, banks are revising appraisal, income documentation, and multiple loan policies. Stay informed on these regulatory changes impacting the largest loan type.

Subprime Lending Cools Off

The lucrative but risky subprime auto loan business that flourished amid low rates is retreating as used vehicle values drop. Fewer lenders are willing to extend 7-year loans to borrowers with credit scores under 650. This impacts financing availability for some of your less creditworthy customers.

Buy Now, Pay Later Booms

BNPL payment options surged during the pandemic and now command over 10% of online transactions. While convenient, these short-term installment plans lack robust consumer protections and credit reporting. Educate clients on potential risks as this space continues expanding into in-store purchases.

Part of your value lies in keeping abreast of changes molding how your clients get access to financing. Adjust positioning messaging or alternative solutions accordingly. Being a trusted resource on these landscape shifts safeguards long-term business relationships.

Budgeting Guidance

A challenging economic time places an even higher premium on budgeting and financial management skills. Providing your clients with some key budgeting tips helps them achieve awareness and control over spending and proves invaluable given financing uncertainties in 2024:

  • Track all income sources and expenses through a budgeting tool or ledger. Knowing exactly where money flows helps control spending.
  • Prioritize essential expenses (housing, utilities, food) that sustain daily living before discretionary amounts.
  • Pay down high-interest debts like credit cards aggressively to reduce interest-draining budgets.
  • Build an emergency fund containing 3-6 months’ worth of minimal living expenses as a financial cushion.
  • Trim unnecessary spending where possible and reallocate those dollars towards building savings or paying off debt quicker.
  • Monitor accounts regularly and adjust budgets with seasonal shifts or life changes impacting finances.
  • When financing large purchases, factor associated costs like interest, taxes, and insurance into borrowing amounts to avoid payment surprises.

Implementing sound budgeting practices with your guidance sets customers up for better long-term financial resilience and control over finances. Let them know you remain available as an additional budgeting resource and accountability partner throughout 2024 when macro conditions may test even optimized household spending plans.

Alternative Financing Resources

For clients facing financing restrictions due to tighter underwriting or credit issues, explore available alternative financing channels. While often carrying higher costs or risks, these options still fulfill essential needs for some. Here are a few to consider:

Peer-to-Peer Lending Platforms

Websites like Prosper and LendingClub facilitate borrowing between individuals. Rates incorporate credit risk but can beat credit cards. Thoroughly vet platforms and understand repayment responsibilities.

Pawn Shops

Pawn shops provide cash advances in exchange for valuables held as collateral. Just 30-50% of retail item value is typical. Items are repossessed if not repurchased within an agreed period.

Title Loans

Using unencumbered vehicle titles as collateral, title loan companies issue loans up to 30% of a vehicle’s value for 30 days. However, APRs exceed 25%, and losing the vehicle is a real risk if unable to repay on time.

Retail Store Financing

Outlets like rent-to-own companies provide financing on furniture, appliances, and electronics, usually at inflated total costs. Lower initial payments allow customers to begin using items immediately, but total repayment amounts can end up 2-3 times the retail price due to lengthy repayment periods and high-interest rates.

While these options provide access when traditional sources are unavailable, advise clients to utilize them only as an absolute last resort due to the significant long-term financial toll. Explore credit-builder loans, secured credit cards requiring a deposit, or payment plans directly through retailers as potentially less costly alternatives before turning to high-cost rent-to-own agreements.

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