Half of Americans Denied Loans as Banks Tighten Standards Amid Interest Rate Hikes

According to recent statistics, half of Americans who have applied for a loan or financial product since the Federal Reserve began increasing interest rates in March 2022 have been denied. This is due to banks tightening lending standards for all types of consumer loans, including credit cards, personal loans, and auto loans, according to the Federal Reserve’s April survey of loan officers. In contrast, more individuals have turned to friends and family for loans since high interest rates make it more expensive to borrow money, according to financial advisers. While turning to a relative or friend can be less financially burdensome for borrowers, relationship-based loans come with inherent risks, as roughly one-third of Americans have had a falling-out over money, with the most frequent cause being a failure to repay a loan, according to a November poll by price-comparison platform Finder. Financial experts advise against borrowing money since the relationship serves as collateral for the loan, which can result in resentment. Platforms and apps such as Namma, Pigeon, and Zirtue have facilitated over $100 million in loans between friends and family since 2020, providing practical tools and aiding in tax record-keeping. These services offer features such as loan contract creation, payment reminder distribution, and transaction record-keeping for a fee paid by either party. Users can negotiate loan terms, such as duration, interest rate, and repayment timetable, following state-imposed usury thresholds. Although these apps promote smaller loans, averaging around $400, they have proven effective for larger sums, with Namma recording more than $4.8 million in loans since its launch in 2020. Nonetheless, financial advisers suggest treating the loan as a gift if you can afford to do so, recognizing that there is a significant chance that it might not be repaid, particularly when borrowing from someone who cannot obtain funding elsewhere.