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Author: Subject: What would happen to our country if we stopped credit?
daniel mason

posted on 11/8/11 at 06:33 AM Reply With Quote
What would happen to our country if we stopped credit?

WIth the current economic situation as it is, it seems to me that a lot of it was down to people borrowing too much and not being able to pay it all back. Most of this was blamed on the mortgage lenders but I feel that with the majority of people, they had other things on credit too like cars and credit cards etc. And with all these payments lumped together it was too much.
So what would happen if all credit cards and finance deals were stopped apart from mortgages? Meaning people could only buy something they could afford! So getting in less debt.





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RickRick

posted on 11/8/11 at 06:45 AM Reply With Quote
it won't make any difference to me! just one massive mortgage, no other debts

I think the idea of credit was fine when it was hard to get credit, credit rating was important, and it wasn't used as a way to sell things
Some of the adverts at the moment for these borrow 100 for a few days at only 4000%apr, and that brighthouse thing pay weekly at 30%apr with minimum checks are just allowing people to stitch them selfs up.
How about only allowing credit on items over 2.5k?

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r1_pete

posted on 11/8/11 at 06:47 AM Reply With Quote
Wouldn't bother me a jot.....

I do remember though, my first car loan, firrst credit card, mortgage etc. were all strictly means tested, and not just a form with income ranges, I had to supply 3 consecutive pay slips, and for the mortgage they wrote to my employer for confirmation of earnings and job security.

IMO that was responsible lending, I guess some do gooding lefty would call that invasion of privacy now.

[Edited on 11/8/11 by r1_pete]

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scudderfish

posted on 11/8/11 at 06:54 AM Reply With Quote
I am a dogooding lefty and I'd call it sound business sense.






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hughpinder

posted on 11/8/11 at 07:02 AM Reply With Quote
In the long run I think it would be a good thing, but:

University degrees would become something for a rich elite/whos parents have saved up, so a whole generation would not be able to take this option while parents get into the mindset of saving up. Some would not anyway. On the positive side, it might focus peoples minds on decent degrees like engineering and science where there is some prospect of actually having a benefit afterwards.

Your choice of jobs, for first timers, would be more restricted as your first job would have to be accessable from wherever you live, due to the lamentable public transport (ok I'm in the sticks, it may not be quite so bad in the cities), and it would take quite a while to save for your first car.

Thats about the only negatives I can think of.

A system of higher minimum payment might work better, instead of 2% of balance per month, where it takes many years to pay back, make it (say)10% of balance per month minimum( or 50 minimum, whichever is the greater), so it only takes a year or so to repay. Most 'credit addicts' allow the minimum payments to build up until they can't afford them, thus meaning you reach this point with less on your cards.

Regards
Hugh

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mds167

posted on 11/8/11 at 07:21 AM Reply With Quote
Like the idea. A lot.

Like other reponders, my mortgage is my only debt and I pay the balance of my credit card each month.
Though I should hasten to add that I've been in the very fortunate position of having been in regular employment the last few years despite two redundancies.
It's been a lot harder for other folk.

I can't see the banks liking it though.
They're used to making billions and credit is one of the ways to do that.
If mortgages were the only form of lending, you'd see arrangement fees, booking fees, exit fees and ERCs increase significantly - not to mention the individual SVRs.
'Free' banking would disappear and you'd find other forms of financial service became mroe expensive and the banks recoup their costs.
They'll get you in the end...

Can you imagine the headlines/threats if such a rescue were implemented "Banks Flee UK following Government Clampdown on Debt" or "London to Lose Status", "London Bankers Head to Europe" - like they were when they threatened to remove bonuses, only worse.

How about debt counselling/financial management in schools?
We need to show the next generation that there's another way...

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Ivan

posted on 11/8/11 at 07:28 AM Reply With Quote
In the short term there would be major negative impacts on business - in the long term there would be major positive impacts - after all 50 years ago there was little to no access to credit with home loans limited purely to home loans and not extended for frivolous purchases.
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minitici

posted on 11/8/11 at 07:42 AM Reply With Quote
Here is where it all went wrong!
1971
15 Feb Decimal currency introduced.
1 Mar Around 1.5 million workers stage a one-day strike in protest against Industrial Relations Bill. Motor industry, docks and newspapers worst affected.
30 Mar Budget: tax reforms announced: from April 1973 income tax and surtax will be replaced by graduated personal tax, and Selective Employment Tax (SET) and purchase tax will be replaced by Value Added Tax (VAT); corporation tax reduced to 40% from 42.5%.
14 Apr Bank of England publishes Competition and Credit Control. Proposals on control of the total money supply intended to stimulate more active competition between banks and on greater use of interest rates to control credit.
15 Jul Confederation of British Industry (CBI) makes major attempt to restrain price increases, provided government takes sufficient measures to reflate the economy. Industry to be asked for voluntary price restraint over the next twelve months or to limit increases to 5% or less in unavoidable cases.
19 Jul Mini-Budget: reduction in purchase tax rates, increase in first-year allowance for plant and machinery and abolition of hire purchase restrictions.

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scootz

posted on 11/8/11 at 08:09 AM Reply With Quote
My pet hate is folk who go on a berserker and rack up ridiculous amounts of credit with no intention whatsoever to repay it!

And all these adverts on the telly and radio offering legal services to these folk to do so does my nut in!





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FASTdan

posted on 11/8/11 at 08:44 AM Reply With Quote
I always like reading these topics.

Not sure about stopping it entirely due to some of the reasons Hugh quoted, but I like the idea of higher min payments as a deterrent (but then, would it be? can still claim bancrupt etc).

I still look at people and wonder how the hell they afford stuff. 09, 10, 11 plate 20-40k cars everywhere. Our combined income is certainly not shy (engineer and teacher) and there's no way on earth I/we are anywhere near being able to walk into a dealer and spunk that sort of money on a car. Just makes you think how collosal the overall credit debt must be. We do have a very large mortgage but luckily no other debts to speak of and we certainly have to watch the pennies.

We seem to have developed a complete and utter obsession with having everything NOW, no saving up etc. Though I can be guilty of that on occasion.





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Doctor Derek Doctors

posted on 11/8/11 at 09:46 AM Reply With Quote
Industry would collapse. Completely

People commenting above are only considering the end user.

For example when I was at Jaguar Land Rover it was when the retarded media were screaming about JLR asking for a bailout...... they weren't they were asking for loans from the government to pay there suppliers as they couldn't get loans from the bank.

Why did they need this loan? Well JLR (and other car makers) don't make any money until they actaully sell a car, so when they start making a new car they use credit to pay for design, tooling, prototypes testing everything until they start selling cars at which point they pay it back, they will have a break even car at which point they will start making profit. (on the RR Sport for example it was about 35,000) once they have sold this many it is all profit.

It all filters down the chain through the suppliers, JLR pay for tooling, the tooling company pay for the billets, the material supplier pays for the raw steel etc etc etc etc

Once JLR couldn't get loans the whole supply chain ground to a halt.

If you stopped credit there would be no industry as nobody would be able to pay to make anything as they can't sell something until they have made it. You have to have credit to make things.

There is bad credit that needs to be stamped out though, I bought an Audi S4 on Santander Credit agreemant, I voluntarily terminated half way through the agreement still owing 9k, the car went through the auction a week later and made <6k Santander will have had to soak up 3K loss on a 15k car. That is why credit collapsed.





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Neville Jones

posted on 11/8/11 at 09:49 AM Reply With Quote
The big problem with the mortgages was lenders giving out 100% mortgages, and even 110%!! Crazy. Then the house crash and they end up in big negative equity. At least in the USA, you just give the lender your keys and walk away, no more debt! It's the lenders problem. Here, you're saddled with the debt no matter what. But with house prices the way they are, how does a youngster ever get into their own home?

On the university debt thing- The MP's now putting all this through parliament and onto the shoulders of the youngsters,...most if not all, went to uni when there were no fees and the grants covered all other costs. The MP's who went to Eton and Harrow and such places, never knew what real life is, still don't, and never will, and could afford todays fees out of family petty cash. They need to learn how real people live, but how do we teach them that?

Cheers,
Nev.

[Edited on 11/8/11 by Neville Jones]

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blakep82

posted on 11/8/11 at 10:14 AM Reply With Quote
quote:
Originally posted by RickRick
it won't make any difference to me! just one massive mortgage, no other debts



so not having a house, and no way to buy another one wouldn't make any difference to you?

having no credit what so ever would put us back to the middle ages really. no new businesses starting out, banks would collapse, meaning huge loss of jobs, don't know how many people are in work in banks/finance etc, but must be in the millions, people won't be able to buy cars and i'm not talking about he ones that are buying expensive cars they can't afford, people won't be buying any cars, thats the end of any car industry we have left.
our whole economy revolves around credit, without it our economy would be even worse than it is now

you can't stop credit all together, it just needs to be done sensibly. maximum 80% mortgages, proper credit checks, and no giving credit to people with bad ratings (note not NO ratings as they have to prove themselves somehow)





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mds167

posted on 11/8/11 at 11:59 AM Reply With Quote
I know it wasn't explicit in the OP but I think the removal of credit was meant to apply to individuals rather than businesses.

It certainly would have a negative impact on retail and then on to the wider economy but would it allow a 'rebalancing'? or am I being naive? I do think it would lead to more expensive FS products across the board.

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big-vee-twin

posted on 11/8/11 at 12:04 PM Reply With Quote
Its not having a 100 or 110% mortgage or even having negitive equity as that doesn't come into play unless you move or sell.

Its more basic, its having the ability to pay - plain and simple as previously stated, loans and mortages were highly scrutinised years ago, none of this self certification rubbish existed were you sign a piece of paper to say you can afford it, most doing this gamble and fail.





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David Jenkins

posted on 11/8/11 at 12:12 PM Reply With Quote
Perhaps a few more restrictions on the "easy money" credit systems would help, such as:

* Short term loans - like Wonga - with their very-easy-to-arrange loans at >4000% APR (which people used to call 'loan-sharking' ).
* Credit-card companies who extend your credit limit way beyond your ability to repay (although there are some limitations there now).
* Banks and other financial institutions who push easy-to-arrange loans at you (I get at least 1 letter a month from my bank).
* Retailers who push easy-to-arrange store cards at excessive APR rates while customers are all dewy-eyed at the goods they are longing to buy.

The list goes on forever...

Also, as suggested above, mortgages should be arranged the way they used to be - go for an interview and prove that you have the ability to repay the loan, ideally by already being a saver with the bank/building society for a while before you apply.

[Edited on 11/8/11 by David Jenkins]





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daniel mason

posted on 11/8/11 at 04:47 PM Reply With Quote
That's exactly what I was referring to in the o/p. I was mainly talking about these companies whom offer a quick fix but charge crazy interest. And companies like car dealerships whom try to sell cars on finance at inflated interest rates.
People always seem to want more than they can afford and borrowing money is what they opt to do. Even when they can't pay it back





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Ninehigh

posted on 11/8/11 at 08:13 PM Reply With Quote
Cheshire would become a black hole...

The idea of them short term loans is it's for a week or two. The company makes a tenner, twenty quid. It just so happens that works out at 4000% apr. I do believe they secretly hope that people are in one way or another continously owing them 50 plus interest but that's how they work, you should be able to not fall in that trap.

In the old days you'd have borrowed a fiver from a friend, or even your boss.






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