What does the future hold for lending in general, and bad credit loans specifically?
Let's get out our lending crystal ball and look forward.
Bad credit loans were basically born out of necessity, people with slow, poor, or no credit needed to get a loan, and there was no place for them to go to get that loan. This "need" is not going to change. There will always be those with poor credit, and in need of some form of borrowing.
Currently, there are many solutions for someone with bad or no credit to get a loan. All you have to do is do a Google search, and plenty of options pop up.
One change we may see is the criteria used for granting a loan. The underwriting process may change, as will as the guidelines used to approve a loan.
A person may have weak or bad credit, but other factors such as the time they have been at their job, what type of job they have, how long they have lived at the same address, these factors may be used to assess if someone maybe a good risk in granting a loan. Lenders may even use unconventional underwriting and look at how many times a person uses an ATM or cash machine. Lenders are already using social media in some instances to determine whether to grant a loan or not.
Facebook recently obtained a patent that may allow them to approve or deny a loan based on your "connections".
Part of the application for the patent stated, "When an individual applies for a loan, the lender examines the credit ratings of members of the individual's social network who are connected to the individual through authorized nodes. If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected."
So if you hang out online with people who have poor credit, it could cause you to be rejected for a loan. People may start wanting to only be friends with those with good credit ratings.
Naturally the opposite of this can be said or used as well. If someone has bad credit, a lender may see they have good credit friends and this could aid the borrower.
Peer-to-peer lending or P2P lending is not anything new, however, in the past 10 years it has become extremely popular, and has grown as an industry.
The way P2P lending works is that investors pool together their money, and then like a bank, they grant loans to businesses and individuals seeking to borrow.
The investors get a better rate of return on their money than if they just put it in the bank, and the borrowers can get a better interest rate than if they borrowed through traditional or mainstream lenders.
In some instances a borrower may not be able to get approved for a loan through a bank, but can get a loan with a P2P lender.
The future of this form of lending and borrowing is wide open.
If you couple P2P lending with unconventional underwriting methods, lenders may grant more bad credit loans via this way.
It is also a new way to invest, and the more investors the lender has, the more money they have to lend.
We use our mobiles for everything and they are always with us, so why not use them for banking as well.
Mobile banking has been around for sometime now and just about every bank has their own mobile banking application. Having this ease of access to our bank accounts is a great way to monitor the account(s) and ensure we never go into our overdrafts if we have one, or face an unauthorised overdraft. These can be very expensive.
Also as we discussed in Chapter 5 and handling our finances, there are mobile applications that can help us with reminders for payments, setting up a budget, and tracking our spending. And we can do all this, and check our bank accounts, all from the palm of our hands using our mobiles.
Some lenders have even set-up "text loans" where once you are registered you can apply for a loan via your mobile phone. These loans are payday loans and for the short-term, however, they are convenient.
As banking and lending have changed over the years, so has how we can send money and make payments. It can be making a payment for a purchase, or to pay someone, how we make payments has and is changing.
PayPal: PayPal has been around for quite a few years now and has changed how we can pay for goods and services, and also transfer money.
Initially, using PayPal was a way to send money to anyone using an email address. As long as you and the recipient had a PayPal account linked to your email address, you could send money, either as a payment, or just to send money to someone.
PayPal also has a mobile app for consumers to use to make payments to a business in store. They also have introduced a card reader for businesses so that business can now take debit or credit cards and have the funds deposited into their PayPal account.
You can think of PayPal as a bank, but with different means to access your money, and different ways to send money.
Paym: Paym is a new form of mobile payment that makes it very easy to send money or payments to someone using your mobile phone and just someone's mobile phone number.
Once you and any recipients are registered with the service, all you need to do to send money is just type in their mobile number. The maximum currently that can be sent is £250, and while you can send money, no one can access your bank account. Those using the service can only have money placed into their account, no one can take money out. It's the beginning of a new and easy way to send and transfer money.