News & Resources

Banks increasingly become competition for lenders

Nov 04, 2012 Sean Albert

There used to be a large draw to using alternative means of finance. When individuals were struggling to make ends meet or depleting savings accounts to fund an emergency expense, they could often seek relief from companies in the industry. Short term lenders have become particularly popular within the last few years after the Great Recession. These lenders saw a lot of traffic because they appealed to people who wouldn't normally be approved for a traditional bank loan, such as those with poor or no credit histories. However, it seems as if a number of larger financial institutions are beginning to offer similar products to keep up with the times, to the detriment of short term lenders. Lenders struggling to compete
According to the Delaware News-Journal, reputable banks are increasingly opening up their doors to new clientele, namely those who have been using short term lenders in the recent past. The news source said high-cost loans are becoming more commonplace at locations like Wells Fargo and U.S. Bancorp, and these banks, in an effort to protect their capital, are attaching large interest rates. Though these institutions are handing out loans now on a wider scale, the news source explained that in order to make the maximum amount of revenue, they're offering them at a large rate of interest - higher than many nontraditional lenders. Should banks decide to offer short term loans, however, they have to make sure they remain compliant with the local, state and federal regulations that govern the industry. For example, the newspaper explained Regions Bank came under fire earlier this year for failing to abide by the interest rate cap in North Carolina. How short term lenders can fight back
Though big banks have reputability on their side, there are a number of strategies nontraditional short term lenders can pursue to win back customers. Marketing and brand building may prove helpful. Companies could capitalize on the fact that they have played a major part in the success of numerous families across the country at a time when many Americans struggled most. Their reputation can be proven through testimony. Also, lenders could draw attention to the fact that in many cases, bank-installed loans have higher interests rates, often for no obvious reason. The News-Journal said that because these corporations have access to an individual's account, the risk of nonpayment is very low. The same can't be said about many other lenders, who often ask for the higher percentage to account for the potential of not being repaid.