Goeasy is a Canadian company that provides leasing and lending services to consumers in Canada and the States. It offers both secured and unsecured subprime short-term bonds.Huh? Are you suggesting a company that offers subprime loans with all these fed hikes? I see why you would think that subprime loan’s morosity would increase even more than the morosity of prime loans during these times, but the reality is different. Let me explain.Tom is a wealthy worker that leaves a wealthy lifestyle. Tom has an 120k office job, a mortgage, and a car lease. He is planning to marry and make a down-payment for a bigger house, but he can’t afford so with his current savings. He has a good credit score so he walks to a bank and asks for a yearly, unsecured loan, since he plans to repay all of it saving some money the following year. Suddenly the recession strikes. Tom loses his job. Tom ends with no income, two mortgages, a car lease and bank loan. Tom can’t afford to leave on the streets so with his 401k he manages to pay one mortgage and chooses not to repay the loan as planned. Tom’s credit score plummets. The bank’s morosity increases.Jeese on the other hand is a janitor. Commutes to work in bus. Leaves with his parents. Jeese is missing some bucks to make the down-payment for an apartment. The bank would never offer him any kind of loan, so he walks to Goeasy and gets a high-interest subprime loan with less questioning. The recession strikes. Jeese has a modest lifestyle; no car, no unnecessary costs. He just needs to pay each monthly his mortgage and the interest of the Goeasy subprime loan. A janitor is still needed, even during recessions. His income barely decreases; he needs two extra months of work to be able to fully repay the loan but he still manages to do so within his range of time. The morosity of Goeasy does not increase.A prime customer has twice as much debt as a subprime customer and a much difficult-to-maintain lifestyle.Full post here. Hope you like it.
