Jul 14, 2014 Sean Albert
Whether to pay for tuition or a car, consumers are looking to procure loans in whatever way possible. While some take the traditional route and visit their banks for financial assistance, others find alternative lending to be the better option.
Why credit rises
For the majority of consumers, borrowing money from a financier isn't an option unless they're able to pay loan officers back. Jessica Alling, a contributor to The Motley Fool, acknowledged that confidence in the economy depends on a number of factors.
- The strength or weakness of the job market
- The mean personal income of the average consumer
- Credit availability and the morale of loan officers
- The types of purchases people are making
The one element the aforementioned considerations revolve around is the nationwide delinquency rate. Loan officers don't want to give money to people if there's a low probability of paying them back. Data analysis and other software gives professionals thorough insight regarding the matter. Depending on the results of these programs, lenders will either approve or deny applications.
Capitalizing on alternatives
Yet, when consumer confidence is high, that doesn't mean they're willing to commit to any loan option that's presented to them. The Digital Age has spawned a culture that searches for options. For example, if a person is interested in purchasing a lawn chair, he or she knows that there are at least a dozen merchants that offer that item. Therefore, the individual is going to buy the product from the merchandiser that offers the best deal.
The idea is applicable to lending. Borrowers are going to obtain loans from officers who can offer them the best deal. Financial Buzz noted that unconventional financial institutions and startups have taken this factor into consideration. LendingTree.com CEO Douglas Lebda noted his company provides people with the choices they crave, supplying resources and tools to those looking to procure housing, automotive and student loans.
A new lending process
Lebda also acknowledged the process his enterprise follows. As opposed to regarding balance sheets that outline risks, LendingTree.com assigns the responsibility of managing credit to those seeking the company's services.
In addition, shadow lending is becoming a more popular practice. Businesses such as Prosper Lending Club take money directly from banks, credit unions and other similar institutions and give it directly to the borrower, allowing people to receive lower interest rates.
How it affects the market
In order to understand how alternative lending bolsters consumer spending, it's important to observe the nature in which LendingTree.com approves loans. Behind the numbers and statistics displaying the health of the market are human beings acting on how secure they feel in making new purchases.
The less consumers understand how credit works - or where their individual ratings rank - the less likely they are to procure traditional loans. In addition, if a lending process is complex and difficult to understand, people will be more wary of investing in the opportunity to borrow money.
Conversely, offers similar to LendingTree.com's are easy to comprehend and empowers its customers with credit knowledge. This approach is key to bolstering the nation's consumer credit rating.