As I stated previously, almost all lending rates start out the same, and then are adjusted for risk. This is true with “the big three” of loans that many people get – credit cards, auto loans, and mortgage loans. And they all have different risks to lenders (with credit cards being the riskiest, to homes being the least risky). Let’s look at all three:

Credit Cards – Easily the biggest lending risk out there. This is because they are usually given out unsecured by any collateral. And add to that the things people buy with them have almost no resale value (TV’s, Blu-ray Players, dinner at the Golden Goose, etc.) So the credit card issuer is taking on a ton of risk, which means rates are really high (18-25% typically).

Cars and other vehicles – These are squarely in the middle of the “risk” table. To begin, there is often a down payment required, so the borrower has something in the deal. In addition, in most cases, the vehicle has a fairly robust resale value. Yes, it’s not going to recoup things 100% for the lender (after all, the vehicle is worth less the minute you drive off the lot), but while the loan is active, the thought is the vehicle could be repossessed and sold. So while the lender isn’t happy when they have to repossess (and you are even less happy when the repo man shows up), at the minimum, they are going to get something back. So auto loan rates reflect this “lessened” risk.

Homes – Historically, real estate typically goes up in value. Ok, perhaps that bubble burst in the last recession, but that’s an anomaly – a home and property can almost always be resold. Add in a down payment, and you have a situation where the lender has a much smaller risk. This is why mortgage rates are the lowest of these three loan types.

The above doesn’t include a borrower’s credit score (which matters) and down payment size (which will also matter), but those tend to vary from loan to loan. But barring that, the risk assumed is what makes these three types of loans so different from each other in terms of rates. So that’s why you are paying 20%APR for that prime rib.

• I’d like to give thanks to the government for realizing that small businesses needed help, and increasing Section 179. It’s definitely a step in the right direction. But it can go further. As I pointed out in another post, bringing back the ITC (the Investment Tax Credit) for equipment and software purchases would be great. Maybe 2011 brings this around.

• I’d like to give thanks to business owners for not grabbing pitchforks and torches and revolting against the government. Yes, I know I just gave them props for the Section 179 boost, but seriously, it happened in the year’s third quarter. So it took them a LONG time to realize “hey, maybe things aren’t as good as we’ve been saying they are.”

• Let’s give thanks again to business owners for weathering the storm that was 2010. Whew, that was tough, huh?

• I’d like to give thanks to Webster’s dictionary for reminding me that “recovery” still means what I thought it meant. Because I have to say, it annoyed me slightly to constantly hear the word “recovery” when in fact, we were really pretty stagnant. In this day and age, “recovery” must mean “well, at least it’s not getting any WORSE.” That works in the hospital (“He stopped bleeding – he’s on the road to recovery!”), but not in the economy.

• I’d like to thank clients who came to my company for equipment financing. We worked with as many people as we could to get them financed, and as the year winds down, I can say that I’m satisfied. It could have been a better year, of course, but we’re all saying that. And like I have mentioned earlier this year, we’re all still here. And that counts for something.

• I’d like to thank Mrs. Fletch for putting up with me. I’m pretty tied to my work, because I like what I do, and she understands that (although she understood it even better when the pool groundbreaking occurred!)

• I’d like to thank my readers. While I write this blog for me (I’m one of those guys who always jotted down his thoughts), it’s really nothing but blather without readers (although some would say it’s blather anyway!) So thanks.

My Section 179 Addendum

This is an addendum I’ll be adding to my posts for the rest of the year. That’s because it’s getting later in the year, and Section 179 for 2010 ends soon. If you want that new piece of equipment, and also want to take advantage of the new, higher limits, NOW is the time.

• 2009 will be tough for many folks. There is no way around that. Jobs will disappear, and workers will be displaced (made redundant, downsized, rightsized, kicked to the curb, kicked to the curb with a steel toed boot, kicked to the curb with a steel toed boot and run over by the company limo on the way to a corporate retreat, etc.)

• Unemployment will rise. 8%… 9%… heck, there is a possibility that we will see double-digit unemployment in some areas. I will attribute this to several factors: the obvious downsizing in many industries, coupled with an increased aggressiveness in offering retirement incentives to older, higher-paid baby-boom workers.

• But from this chaos will come opportunity as well – it will present a chance for many companies to differentiate themselves from weaker competition. Like you’ve heard me say here before, it’s easy to compete in good economic times. So 2009 will cull the herd a bit in regards to established companies.

• Related to the above, companies that traditionally used cash will now look to leasing more and more. Equipment leasing can still be had, and companies will find out that it’s pretty darn profitable as well. However, lease terms will continue to tighten some, as equipment finance companies and banks look to limit losses and bad debt. But again, strong companies will be able to get credit.

• Continuing on the opportunity theme, not every laid off / displaced / “asked nicely to leave” ex-employee is going to sit in his or her Barcalounger watching Wheel of Fortune. 2009 will see record numbers of small business startups.

• Those small businesses will need help, and the new administration will answer. I predict the Economic Stimulus Act of 2008 will be renewed, and perhaps even enhanced. Meaning my old buddy Section 179 gets a nice little facelift.

• In fact, we will see several attempts by the government to help businesses. Meaning we may see the return of the Temporary Investment Tax Credit (MIA for almost a quarter century). Personally, my industry (equipment finance) would love to see something like this.

• The Titans will win the Super Bowl, the Yankees will win the World Series, the Celtics will win the NBA title, and the Red Wings will win the Stanley Cup.

• The Dow will fluctuate wildly – one day, it’ll be doom and gloom, then there will be a rally. Wash, rinse, repeat. Antacid sales on Wall Street triple. And at the end of the year, the Dow will sit right around 8400.

• Fuel prices have had enough of the roller coaster that was 2008. Demand has dropped, and will stay at lower levels, somewhat stabilizing fuel prices.

• Lastly, in order to stimulate the local economy, the government establishes the “FletchFund”, enabling the purchase of home theater equipment, a pool table, and that sweet tractor at Home Depot (the big one.) This is a fairly necessary step for a healthy 2009, and one I encourage Obama get right on.