Two US Short term loan providers will offer consumers a chance to rebuild their credit score and work their way back to the mainstream lenders.
Much has been said about the UK payday loans market, but now two new US lenders are taking a different tack by offering products that help customers make the step up to mainstream lending.
Before Financial Conduct Authority (FCA) regulation went to such great lengths to tidy up the industry, Short term loan providers were seen as a predatory force preying on the poorest of the poor. However, in recent years, there has been an influx of new short term loan lenders, such as wizzcash.com, which working within the realms of industry regulation to offer a product which can give customers a route back to mainstream lending.
A focus on credit building opportunities
Two American lenders, LendUp and Elevate, will work with borrowers who have previously been refused loans by the banks, to help them demonstrate their ability to handle debt and make the progression into the mainstream banking system. This is the first step in working towards being accepted for a credit card, and having access to unsecured loans and mortgages.
LendUp and Elevate are setting their sights on the installment lending market, which is designed to serve borrowers who do not qualify for loans from high street lenders. The difference between installment loans and their payday counterparts, is that while payday loans are simply designed to bridge a cash shortage for a couple of weeks, installment loans last longer, typically for two to three months. Installment loans are usually taken when there’s a sudden and considerable expense, such as a broken boiler, or a family bereavement.
By showing they are able to handle a longer term source of credit, borrowers are able to go some way to repairing damaged credit scores, and restore the faith of some of the more mainstream lenders in their ability to service a debt.
Payday lending to be overhauled in the US
In the UK, authorities have made a big effort to crackdown on Short term loan providers, and have done so with some success, forcing operators to clean up their act or risk losing their license to trade. In the US however, the process of overhauling the industry has only just begun.
Under the new regulatory regime, lenders will have to determine the consumer’s ability to repay a loan before it is granted. There will also be proposed limits on the number of loans a customer can access - between 6 and 10 a year – and restrictions on the way repayments are collected.
However, as in the UK, operators who are not attempting to skirt their responsibilities and operate outside of the law will have nothing to worry about, prompting the less scrupulous lenders to exit the industry, leaving those who are committed to developing longer-term relationships with their customers behind.
The ultimate prize for borrowers who move up the installment loans lending ladder without missing any payments is a report from the lender to the three nationwide credit bureau. This, in turn, will give borrowers access to much cheaper credit.
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