Because the seller won’t sell to someone like that. Go ahead and try it. If I am selling a house, I want all the money. I don’t want a promise from someone I don’t know very well to pay me every month.
You don’t belong in this thread, you should open another one to address this. You have a lot of ignorance to be fought.
Short answer. Because banks hold a lot of bad debt and if companies collapse it could lead to a general banking collapse and if the banking system collapses your money vanishes. All your savings gone.
Simplest example: When you take out a mortgage to purchase a house, you agree to pay for the house over a period of time (typically 30 years though other terms are also common), at an agreed-upon interest rate (say, 6%). If prevailing loan interest rates drop to 5%, you can either stay with your current loan and keep paying it off at that rate - or you could take out a different loan, and only pay 5% interest. Same principal figure, but your payment is lower.
For example if you’ve borrowed 100,000 at 6%, your total interest for the year is 6,000; if the rate is 5%, your interest for the year is 5,000. Over 12 months, that’s about 80 dollars a month less.
What’s interesting about the whole credit-crunch thing in our direct experience: Even though we were refinancing through the same lender, and lowering our payment substantially therefore decreasing their risk, they applied today’s loan criteria as if we were new customers.
If our house had been worth less than the existing loan amount, we couldn’t have refinanced. Say the house is worth 200,000 and our loan was 220,000 (made-up numbers), they’ve got an old loan that’s upside down, but they don’t care about the upside-down portion on the old loan. But they wouldn’t write us a new loan for 200,000 at a lower rate. Even though that’s arguably less risky for them than keeping us at the higher rate, and, and we’re no more “upside down” than we were before - they don’t recognize the old loan as a risk unless we’re in arrears.
The seller wants their money now so they can take it and spend it (on a new house for example) or invest it and earn income on it. The buyer has to come up with the money to pay for the thing in full. The buyer can either have cash on hand from savings or whatever, or find someone to give them that cash. That’s usually a bank. The bank of course makes its profit by lending out its money, but charges for the privilege.
What you describe would be seller financing and it’s certainly done, if the seller doesn’t need all the cash immediately and would like an income stream - but the seller will charge you interest also. Most home sellers don’t want the bother so the buyer has to go to a bank. Even car dealers who offer financing usually have something arranged through a bank, they just do the paperwork at the dealership.
I actually did (and still would, but the issue seems to be academic now) favor letting the big boys go down the tubes into bankruptcy. They’d win up reorganized, with smaller companies carved from their entrails, and the worthy, healthier companies would aquire some of their assets. It would have been more painful in the short run, but much less so in the future.
[Moderator note]
This is an inappropriately snarky comment for GQ. Let’s not tell other posters they “don’t belong in a thread.”
Colibri
General Questions Moderator
Most car companies have their own finance division so you are paying them once a month, not a bank. (if you finance through the car company) In some cases they pressure you to use their financing since they can make more there than they can on the sale of the car.
In my state, land contracts are very, very easy to repossess on compared to bank loans. If you have no immediate need for the money on the sale, a land contract can be quite lucrative.
There is “supposedly” a tight credit policy in effect-so why am i getting 4-5 credit card offers per week? i am conservative-we have a very small mortgage, appreciable assets, and no debt. So what are we being offered virtually unlimited credit? The credit limits on the four card s I was offered totalled $120,000. So why?
Asked and answered, I suspect: you show up in all the credit reports as having low debt and (I presume) a stellar payment record.
We get several solicitations every week - from Crapital One in particular. One existing credit card in particular sends each of us an envelope full of cash-advance checks pretty much every week, and we get offers to extend us home equity lines of credit at least once a week. Our shredder gets a workout.
And this is with probably much higher debt (we have a fairly large mortgage; and we have a car payment, plus a balance on one card) though we do have a solid payment record.
Meanwhile I know people who’ve had their credit limit cut on existing credit accounts. I haven’t asked them what their credit situation is (none of my business).
But my theory is the banks are really scrambling to get the credit-worthy customers, and to hell with the folks whose FICOs are a little lower. As opposed to two years ago where they were handing out credit cards like they were breath mints.
The best example of not letting a company fail is FOX.
In the early 90s just before FOX got football it was in danger of collapse constantly.
Murdoch (the owner) was esentially just borrowing money, then when the loan came due he went to another bank and borrowed money and paid off one loan with another loan.
Then in the early 90s, just before FOX got football, Mellon Bank called in his loan and he couldn’t find anyone to loan him anymore. So Murdoch went to Mellon and said “Look you can refinance and extend me the loan, raise the interest a bit, and HOPE I’ll be able to pay you back. If not, FOX will collapse, go bankrupt and you’ll lose EVERYTHING. At least this way you have a chance of getting your money back.”
Mellon went for it, and with the help of a British bank refinanced FOX. A year later FOX picks up football and the network took off and everyone got their money.
So if the banks had let FOX fail, they would’ve lost their investment, the networks would’ve lost a competitor, probably the WB and UPN wouldn’t have gone ahead (it would’ve shown a fourth network wasn’t viable), and all those FOX employees of today wouldn’t work, no FOX cable channels. Well you can see the domino.
Mortgages and credit cards are very different, but, also keep in mind that pre-approvals are worth approximately zilch. They’re marketing; until you apply for and receive a card with a set credit limit, this information isn’t very substantial.