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When it comes to lending, people have a lot of “common sense” about how the average person should look for and commit to new loan. It goes a little something like this: shop around for the best rates and the most beneficial terms, so you’ll pay less money in the long run. But it turns out that most loan customers don’t actually apply this. And that might not even be a bad thing.

Peter Lane of Personal Loans Now says

"According to the FCA recent research only around 9-12% of people who wanted HCSTC chose firms on the basis that they are the cheapest, had good interest rates or were the best offer on a price comparison website. This says that people aren't choosing loans based on price but other features eg fast decision and payout.”

While this might make it sound like borrowers today are just more flippant in their decision making than those in the olden days, there’s another way to spin this story. For most adults, getting a loan the traditional way is not an easy feat. Banks are choosy about who they lend their money to, and many people simply do not make the cut.

This may be because their debt-to-earning ratio is considered too high, their credit score too low, or any number of other factors out of whack from the perspective of the bank lender. This population is bigger than you probably think, and extends well into the middle classes. These people can be called the “underbanked” or the “unbanked”. For them, banking services are not accessible, lending chief among them.

This leaves people in a precarious situation, until recently. In the past several years, a whole host of non-bank lending options have come into existence, offering people the money they need fast, without all of the judgement calls that a bank will bring to the table.

Speed is an important factor to emphasize. Even if you are able to get a bank loan, the money certainly won’t find its way into your bank account for days or weeks. This is a real problem for people who need to borrow money, are able to pay it back, but have an immediate need of the new money.

The new generation of non-bank lending isn’t like this at all. Because they make money available to a wider swathe of the population than banks do, they are able to send the cash much faster. This is because there simply are not as many checkpoints and roadblocks as we’ve come to expect from international banking groups. This makes fast money available to people who truly need it, no matter what their economic status.

So while a bank may be able to offer a more affordable loan, they can’t do it with the speed and equitability that the modern economy demands. Real people need cash infusion for endless purposes: to consolidate debt, to seek further education, to buy a vehicle, and on and on and on.

For many, banking is more exclusive than it has ever been before. As in many parts of the financial industry, decentralisation is the word of the day. Private companies and new blockchain technologies move money around faster and at much less cost than gatekeepers such as banks.

This decentralisation will continue to erode the lending relevance of traditional banking. With time, lending services will emerge that perfectly meet the needs of the underbanked, or those who simply need cash faster than a bank could provide. This will only benefit the consumer. It may not sound like common sense, but novel borrowing options are a good thing. 


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