A banking expert said that if you've tried to get a consumer loan during the past few days, whether you realize it or not, you've had a tougher time getting it. After real estate, automobiles are the consumer item that people most often buy with borrowed money. And if Wall Street's problem is not solved they will not buy as many:
At the auto dealerships along Chicago's North Western Avenue, the credit crisis is real.
"The banks don't have a good sense of what is going to happen tomorrow or the next day, therefore they become tighter on the credit," said Shahin Shahsavar, Sierra Auto Group.
Managers and owners there say that in the past few weeks, financing for new and used car buyers is harder to come by. Even customers with good credit are being asked for substantial down payments.
"If you are purchasing a car and you read in the newspaper rates available, they qualify those rates with 20 percent down," said Russell Anderson, Carr's Honda Center owner.
The credit crunch at new and used auto dealerships can be traced to falling real estate prices. Banks and other lenders are so stressed by the bad mortgages they hold, they cannot make their usual number of consumer loans for cars at reasonable rates. And businesses that sell automobiles and other big ticket items cannot borrow as much money to buy inventories and make their payrolls.
"Not only is it harder to get a loan today than it was a year ago on mortgage, car or credit card applications, it's harder to get it than it was a week ago," said Diane Swonk, Mesirow Financial economist.
If the government bought $700 billion worth of bad mortgages, the theory is that stressed lenders could make more loans available to businesses as well as consumers.
But Jeff Velez, whose family needs a loan for a new car, said he disagrees with the bailout strategy. He says too many easy consumer loans is what caused the problem in the first place.
"I think they're just throwing money at money and won't solve the issue, i really don't think it is," said Velez.
Several used car dealerships said that some of their banks have already suspended their auto loan products until further notice. But it's not a bad time to buy a car if you've got cash. The credit crunch is putting some downward pressure on asking prices.