bearfund

GMAC: Happy to Lend You Some of Your Own Money

303820, I've borrowed money to buy a car without providing proof of employment, income, or assets. Not sure whether those terms are still available, but they certainly might be. And I don't believe I've ever provided any of those to a credit card issuer either, but I have big enough lines to buy at least a couple of cars. At some point, if you have enough credit lines outstanding and they've all been current for a long time, where the money comes from isn't particularly important to lenders. That's especially true of secured lending (which car loans are), and credit cards which tend to have relatively small initial limits.

In short, if you have a credit score in the 800s, you can probably borrow tens of thousands of dollars without providing anything at all. You probably cannot borrow hundreds of thousands without doing so, except maybe in a trading account.

Now, if you have a credit score of 620, you're going to have a tough time borrowing money on any kind of reasonable terms, regardless of your income or employment situation. Crazy? Maybe, but true. Personally, I think it's pretty reasonable; if a loan is small or well-secured, there are no red flags about a particular transaction or your recent credit history, and you have a long track record of paying reliably, proof of employment isn't really that important. Likewise, if you have a track record of not paying your bills, I don't really care that you're a hedge fund manager making $800k a year. You don't pay your other creditors and I don't really care why. All I can do is assume you won't pay me either, and not lend to you.

Welcome to the bizarre world of consumer credit. It's very different from corporate credit, which places far more emphasis on ability to pay. In general, the assumption is that a history of payment in the absence of sudden increases in borrowing connotes both ability and willingness to pay; people who are able to pay for a long period of time are assumed to be the same kind of people who manage their balance sheets well, so they'll probably be able to pay in the future as well. More importantly, they're also willing to pay; many people are able to pay but unwilling, which is rare in the corporate credit universe (probably because the amounts are large enough, and the debtor's assets easy enough to find, that it's worthwhile for creditors to seek legal remedies in case of default).

So coming back to the issue at hand, no, having a few more people working making cars doesn't really mean very much to the economy if there are also a few more people buying cars who can't really afford them. More wages being paid to a particular group of people doesn't necessarily equate to a bigger real economy. Strange but true.