News & Resources

New MicroBilt Study Results Indicate Short-Term Borrowers Understand the Industry

KENNESAW, GA, Aug 12, 2013

MicroBilt’s new study of short-term loans reveals that the average borrower is more sophisticated than the industry’s critics would suggest. The results show a pattern of loan use indicating that the majority of customers know how to use short-term loans responsibly and pay them off without a long cycle of renewals. An accompanying survey also reveals that customers have a generally positive view of short-term lending, understand what they are getting into before they take out a loan, and desire an alternative credit scoring system that could give them greater access to credit. Despite this demand, loans are not available through in-state lenders in several states due to excessively prohibitive state regulations. “When used properly to bridge the gap for an immediate financial need, small dollar loans provide the necessary liquidity for hard working Americans to make ends meet," said MicroBilt CEO & President Walt Wojciechowski. "These loans eliminate consumers' fears of finding themselves without access to credit and relying on incurring overdraft and late fees, utilities being shut off or the risk of losing a job because they are unable to pay for that necessity or emergency financial situation.” After reviewing almost 800,000 loan records, the data shows that a long “cycle of debt” through short-term loans is actually quite rare. The average short-term borrower takes approximately 5 renewals before paying off a loan and more than half of all borrowers pay back their loans with 3 renewals or less. Problematic borrowers who take 20 or more renewals make up less than 5% of borrowers. This suggests that the vast majority of customers use short-term loans responsibly, with a realistic plan to pay them back. MicroBilt’s data study was accompanied by a survey intended to gauge customer attitudes about short-term loans. Customers seem generally positive about the industry and surprisingly sophisticated regarding how short-term loans are used. Regarding customer satisfaction, about 74.5% of respondents said they would either use short-term loans for future needs, or at least consider it. And more than half of the participants would recommend short-term loans to a friend. Short-term loans impressed consumers with their speed and convenience. Among consumers likely to use short-term loans in the future, most said that they were motivated by the fact that short-term lending is either “convenient” or “fast.” The positive feedback indicates that the respondents have a good understanding of how short-term loans are useportfd. For example, when asked to guess how long most customers take to repay a short-term loan, only 13.3% responded that the majority of customers pay off their loans on the next payday. Most respondents correctly indicated that a reasonable number of renewals (1 to 5) is normal and most knew that new renewals would result in additional fees. Short-term borrowers are eager to gain greater access to credit, particularly through more thorough credit scoring. A whopping 78.3% percent of respondents said they would take the chance to build credit through bill payments, and only 5.2% said they would refuse (16.5% did not know). Lenders seeking to satisfy this consumer demand should learn more about MicroBilt’s PRBC Credit Score. The world’s largest alternative credit bureau, PRBC is helping connect good credit risk borrowers with lenders who accept alternative credit scores. Despite criticisms, this study suggests that alternative finance still has a bright future ahead, as consumer demand and satisfaction remains strong, particularly among lenders who use alternative credit histories, such as PRBC, to offer better deals. "The PRBC model comes with tools that allow lenders to balance risk vs. reward," said MicroBilt EVP of Analytics, Dr. Pat Nanda. "Over time a lender is able to discern which borrowers carry less risk, which allows the transition of the responsible and more profitable borrowers to traditional installment lending." Contact Sean Albert at 1-800-884-4747, ext. 4884.

About MicroBilt Corporation
MicroBilt is the leader in serving small businesses with data and tools that they need to manage risk and make informed lending and hiring decisions. MicroBilt offers the small business owner simple, cost-effective solutions for fraud prevention, consumer financing, debt collection, and background screening. With its PRBC® Consumer Report with the FICO® Expansion® Score, MicroBilt is the leading provider of alternative credit data to businesses that want to offer credit and other financial services to the over 100 million underserved consumers in the United States. For more information, visit