Need a loan? Borrow like it's 1975

The party shuts down

Those days are over. Today, lenders are having trouble finding investors for their securitized loans. That has made them more cautious about lending. To wit:

• Approval rates on car loans has plunged to 63% in 2008 from nearly 83% a year earlier, according to CNW Marketing Research of Bandon, Ore. Subprime approvals fell to around 23%, down from 67% a year earlier.

• Leases have become an endangered species. Ford and General Motors have sharply curbed their leasing programs; Chrysler has ended leases altogether. Leases on anything other than foreign luxury cars are getting hard to find, Edmunds.com's Toprak said, and the percentage of the auto lending business attributable to leases "has dropped to the single digits."

• Nearly two-thirds of banking institutions polled last summer by the Federal Reserve had tightened standards for their credit cards. Many were lowering credit limits, raising interest rates or increasing the minimum credit scores required before new accounts could be opened. Direct mailings dropped 17% in the first quarter of 2008 from their 2007 peak.

• Three-quarters of lenders had tightened their standards for prime mortgages, those made to borrowers with the best credit histories, according to the Fed. Many are requiring higher credit scores, more-thorough income documentation and larger down payments. Almost all of those still making loans to people with subprime credit (a dwindled pool, indeed) had tightened their standards, too. One hundred percent financing is history, said mortgage expert Dick Lepre, although you can still get 97% financing with an FHA loan.

How to measure up

Of course, we'd have a long way to travel to 1975, and it's unlikely that innovations such as adjustable-rate mortgages and long-term car loans will disappear.

Still, lenders' newfound respect for risk is likely to continue. Like the lenders of the 1970s, tomorrow's lenders will want borrowers to have:

• A relatively clean credit history.

• A steady, provable income.

• Skin in the game (translation: a big down payment).

Here's how you cope:

• Boost those credit scores. Even in the midst of this credit crisis, people with high FICO scores are still getting loans at decent rates. They're being approved for new credit cards, landing mortgages and finding auto loans (although they face more paperwork and perhaps more shopping around for a lender). If your scores aren't 720 and above, read "7 fast fixes for your credit score" for tips.

• Think "steady." Limit job-hopping. You don't want to pass up great opportunities, of course, but getting at least a couple of years in at one employer may make it easier to get major loans. If you're self-employed, be cautious about deducting all your income away; lenders are going to want to see you've got some net income at the end of the day. (See "How to wow your mortgage lender.")

• Save before you buy. How old school is that? But putting at least a 20% down payment on a car and a 10% down payment on a house were always smart moves because they gave you at least some equity in your purchase from Day One. Having a down payment also gave you a wider choice of lenders and loans; today and for the foreseeable future, a down payment may mean the difference between "some" and "none."

Liz Pulliam Weston's latest book, "Easy Money: How to Simplify Your Finances and Get What You Want Out of Life," is now available. Columns by Weston, the Web's most-read personal-finance writer and winner of the 2007 Clarion Award for online journalism, appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board.

Updated March 13, 2008

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