Many individuals are finding themselves struggling to make ends meet in today's economy, and some decide to turn to banks and other institutions to obtain loans. However, more and more consumers with low credit scores are being turned away by these larger organizations. But alternative financing options are also available, and U.S. consumers are reaching out to them to get the necessary funds.
Low credit keeping consumers from three types of important loans Interest rates are increasing, according to Smart Money
, with credit card lenders charging at least a 17 percent rate with lower-end scores. Some card companies will not issue a card to a consumer if the credit score is below a certain amount. Also, if there is a balance owed, the interest rate is applied, making it more difficult for the individual to pay off the amount, states the news source. Automotive and home loans are another difficult option for consumers to obtain, as approval is based on the score. Individuals with less-than-stellar credit can pay thousands of dollars more per year just in interest alone for car and home loans, says the website. Alternative lending rising among consumers and small businesses With the increasing difficulty of being approved for loans, many are searching for other methods. Alternative financing options are available, and non-traditional lenders can benefit from offering funds to consumers who are being underserved by banks. The Street reports
that alternative financial lending, such as accounts receivable financiers, microlenders and merchant cash advance companies, are experiencing a rise in their lending services, especially among small businesses. More than two-thirds of alternative finance
loan applications in May were approved, which is higher than those approved through small and large banks. Biz2Credit CEO Rohit Arora told The Street that many institutions that do not have much experience with alternative lending were joining in on the trend after they saw the advantages. "Over the last year what we are starting to see is that kind of funding is coming from more mainstream lenders because of all these different reasons," Arora said. "It is also creating pressure on the banks and other institutions to go out and start lending again to businesses." Alternative lenders are known to offer easy access to loans. Arora says interest rates are falling, as costs are decreasing and more lenders compete with each other.