The Flexibility of Lending Market is Growing in 2024

Last Update: March 12, 2023 • Loans •

You need some money to cover unexpected costs. This is something that happens to everyone. You searched for a loan online and found some great offers. And now you get the ask: ‘We are sorry, but your credit score is 10 points lower than our minimum requirement. You can get a payday loan with an APR of 400%.’ This is a really undesirable situation that many people have found themselves in.

The reason for writing this article is to explain one very interesting trend that we have seen over the last few years. The loan market is becoming much more flexible each day. Many people have been in the aforementioned situation or very close to it a few years ago. These days, lenders are more open to giving loans to people who don’t have a perfect credit score.

Why Does This Happen?

One obvious reason is that the loan business is very profitable, so the competition between lenders is becoming fierce. This makes lenders ready to make more compromises and give you a loan.

Another reason is that lenders realized that the old model, where your credit score is the only factor determining the loan risk, is shortsighted. Your credit score is still the primary factor, but lenders use many other factors to determine your risk these days. They look closely at your actual financial situation. Because what they care about is if you can repay the loan, not only what your credit score is. Things like work history, income, and even education, play a very important role for some companies.

There are 3 Types of Loans

Secured loans

With secured loans, you put something in collateral, and if you can’t pay the loan on time, the lenders can easily confiscate the collateral.

Unsecured loans for great credit

These loans don’t require collateral, but they require your credit score. In brief, you put your credit score in collateral.

Unsecured loans for bad or low credit

In this case, a problem can occur because you don’t have anything. No credit score and no collateral. In this case, many lenders won’t approve you. Others will increase your APR and lower the amount they will give you, explaining that you present a risk because of your financial situation. And this is the exact group of people that will benefit a lot from the loan market’s flexibility.

What Does Flexibility in The Loan Market Actually Mean?

More easily approved loans

These days, many people with low and even bad credit scores have chances to get personal loans. Some companies have minimum credit score requirements and debt to income ratio, but these values are low. However, some companies don’t have such requirements. Many lenders will look at other factors, too, not only your credit score.

Many more companies are available

The number of lending companies is growing, so many more attractive offers will be available for you.

Lower APR

The competition between lenders is growing. Therefore the offers will only be better and better.

Transparent contracts

How many of you have had a contract with hidden fees? More lenders mean things will start to become more transparent.

Higher amounts

Lenders will start offering more money. Typically, people with bad credit won’t be approved, or they will receive a lower amount. But now, the amount that lenders give, even to people with a bad credit score, will be increased.

More niche lending companies

These days, there are many more niche companies. For example, companies that target only people with bad credit, companies that target only people like you, or people who do debt consolidation, and so on.

What are Alternative Payday Loans?

Payday loans are a very bad deal for almost everyone. The lending market competitiveness introduced something totally new in the lending business – alternative payday loans. Although many people comment that this is still not great, we can’t hide that they actually have many benefits against payday loans.

They are much more flexible than payday loans – you can expect more money, lower APR, better terms, no delay penalty fees, even a chance to postpone the payment with no consequences. These companies also offer people much better terms if they improve their financial situation. For example, if they see that you pay your loans on time and your credit score increases, they will start lowering your APR and increasing the loan amount you can get.

What about Payday Loans and Auto Title Loans?

Although they are a bad deal, some people still use them. But we hope that the number of people who do this will decrease. One obvious reason for this is the law regulation. There are states where payday loans are completely illegal and others where laws regulate them. The same goes for auto title loans. Here are payday and auto title loan laws by state.

How Payday Lenders React to This?

They almost don’t react. We can only mention the new big change in payday loans – installment payday loans. If some of you see this as an improvement, it probably is. Some lenders started to offer people the same bad deals but with better repayment terms. Payday loans are still offered the same way – fast cash, no credit score – no problem, come and get your money right away. And in time, pay us our incredibly high APR. These loans are still a bad deal.

Conclusion

The competition between lenders leads to a more flexible loan market. This process started a few years ago, and according to many financial experts, it is likely to continue.