Recommendation for Mass Borrowing of Auto Loans - Essay Example

Based on a PESTEL analysis by Jurevicius (2013), the issue is worsened by the fact that high unemployment levels and increasing interest rates could lead to credit losses. People are spending a lot of money on buying expensive cars because of the ease of loan accessibility. A risk emerges where they may not be able to pay for the loans putting the banks at loss. Moreover, the availability of loans could lead to high prices for autos hence putting the consumer at a disadvantage.

The longer the period, the higher the risk because the political or economic environment may change over time. Another option on the same is to charge high-interest rates on long years of repayment and low-interest rates for a few years. By so doing, the consumers will be prompted to go for fewer years and be sensitive to borrowing which will reduce their borrowing rate. The banks, on the other hand, will also be able to get profits within a short period and be less vulnerable to offering loans on a short-term basis. Another recommendation is for the banks to base their lending on the payment history of the customers if they had previously borrowed the loans.

However, for new customers, the banks should relate lending to the income and payment abilities of consumers. Considering such elements will lead balance between the banks and their clients. The customers will not be strained to pay the loans while the banks will have a higher surety that the loans will be paid. Another recommendation to solve the problem is based on the root cause of high lending rates. The banks are said to be lending largely due recovery from to a recession period where many of them made big losses.

Therefore, this paper recommends that such a situation can be solved by government involvement. Government involvement, either through direct involvement or subsidies, could offer financial support to the banks or do away with the need for them to largely lend to increase the number of sales. It will also reduce the amount of borrowing from the public. Finally, instead of high lending rates, car scrapping schemes should be introduced. These schemes allow a customer to receive money and trade their old cars for new and efficient ones.

Such a strategy will increase the demand for vehicles and reduce unemployment levels. Such a decision will leave both the banks and the customers satisfied. Furthermore, it will also cater to any unforeseen circumstances whether in the short or long term.