Historically, small personal loans have been difficult to obtain from traditional banks for consumers with less than stellar credit. The financial crisis of 2007-09 amplified the strict credit and approval requirements. The unbanked and those with poor credit often have had to resort to payday lenders, selling possessions, or other – less than ideal – forms of finding financing.
Online lending popped up as an alternative to traditional financing. For consumers who had been spurned by traditional lenders (banks, major credit credit card companies), online, peer-to-peer lending companies emerged. This enabled both borrowers who could not secure traditional financing as well as yield-starved investors to connect. Leaders in the peer-to-peer lending space include such names as LendingClub (NYSE:LC), Prosper, and Upstart. While these are viable options for consumers who either do not want to go through traditional banks or cannot get approved, consumers with worse credit are often left out in the dark.
Options for consumers with lower credit scores
The COVID-19 pandemic has been hard on many, with unemployment rates peaking at 14.7% in April, 2020. The government has been working to free up credit by cutting rates to zero and implementing a round of quantitative easing. However, for those who have poor credit and live paycheck to paycheck, there are scarce options to make ends meet. This group of consumers has historically been shut out of the traditional lending marketplace, and even the new peer-to-peer platforms have minimum credit score thresholds that this group may not meet. So what options remain???
The birth of an online marketplace for loans
The Evolution of Online Personal Loans
Despite the Federal Reserve’s best efforts to encourage borrowing, traditional lenders have generally tightened their borrowing requirements after the 2007-09 financial crisis.
Since 2015, millions of people have applied for personal loans, with billions of dollars of loans having been lent.
Marketplace lending is a recent innovation, born from the ashes of the financial crisis that ended in 2009. It is fulfilled through a third party who acts as a broker – connecting borrowers with lenders (investors). Since loan approval is largely tied to the borrower’s credit score, lower-credit consumers have largely been shut out of many loan opportunities.
Types of Personal Loans – secured vs. unsecured
There are two types of personal loans – secured and unsecured. Secured loans are backed by collateral. That means that if the borrower fails to make regular monthly payments, the lender has the right to claim that collateral as payment for the loan.
On the other hand, unsecured loans are not backed by collateral. By looking at the borrower’s financial history, the lender decides whether or not he/she qualifies for the loan. Unsecured loans can seem more attractive, due to the lack of collateral, but approval is almost entirely dependent on the borrower’s creditworthiness.
Options for low-score borrowers
The marketplace is always evolving, be it the medical field, investment options…or options to attain loans. For consumers in the lower credit score tier, we have an option for consideration…
Zippyloan
Regardless if your credit score is good or bad, ZippyLoan can provide possible loans – of which, they may contain more favorable terms. They offer numerous services and willingness to meet the client’s wishes. ZippyLoan is extremely flexible and has basic qualifying criteria.
Zippyloan serves as an intermediary between lenders and borrowers. They do not lend directly. Here we will provide a brief Zippyloan Review:
Requirements: To apply at ZippyLoan, one must be at least 18 years old, have a verifiable regular income, hold a bank account, and provide proof of residential status. The process of applying may be less intense than at other lenders – just fill out an online application form. Zippy will pull the borrower’s credit report and verify the information provided. The waiting time is generally around six business days, and approval rates are rather high (around 75%), which means that approval may be more likely than with other lenders
Zippyloan: pros and cons
Pros:
- High approval rate – 75%
- Fast turnaround time – generally one-to-two weeks
Cons:
- Interest rates tend to be higher, particularly for low-score borrowers
- Without a clear plan to eliminate debt, a borrower can find him/herself stuck in a constant cycle of borrowing without making any real progress
- Applying for a loan can ding your credit score
If the reason for borrowing money is to simply one’s life and begin a journey to living debt free, then consolidating debts to pay them off faster may make sense. It’s crucial to have a plan, stick to it, and regain control of your finances. As with all things personal finance, it is on the consumer to research options and choose what is right for his/her situation.
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