Lenders Use AI to Offer Low Credit Personal Loans to Borrowers


New fintech lenders are using AI to expand access to credit and provide personal loans to borrowers with low credit scores. (iStock)

Fintech lenders are taking an unprecedented step by using artificial intelligence (AI) to offer personal loans to consumers with low or even no credit scores.

In fact, a fintech startup lending platform called Upstart will soon be offering small dollar consumer loans at an annual percentage rate (APR) of less than 36%, according to american banker. This rate is significantly lower than what is typically charged for this type of loan and makes it a viable alternative to credit cards. In fact, payday lenders charge percentage rates of up to triple digits on these loans. But now Upstart says it will use AI subscription models to offer cheaper rates.

“It offers people reasonable rates for short-term loans, and that’s something that hardly exists there,” said Upstart co-founder and CEO Dave Girouard in an interview with American Banker.

Upstart said this new offering is still in development but could be available to consumers by the end of 2022.

If you’re struggling financially and need to take out a personal loan but don’t have a good credit history, you can visit Credible to find lenders who have personal loan optionseven for those with poor credit.


AI could increase access to credit

Using AI to take out new loans allows lenders to use more data than is available on a credit report when making their lending decision. For example, Upstart personal loans use more than 1000 variables to assess each request, exceeding the traditional credit score and opening up access to credit, the company reported.

In November, Upstart announced that it had partnered with the Office of the Comptroller of the Currency (OCC) Project Roundtable for Economic Access and Change (REACh) “to promote financial inclusion thanks to better access to credit “. The project brings together leaders from the banking sector to identify and reduce barriers to accessing credit.

“Historically, an over-reliance on traditional credit scoring means that not everyone has had the opportunity to build credit, despite their creditworthiness,” said Nat Hoopes, vice president of Upstart and responsible for public policy and regulatory affairs. “Less than half of American adults can access prime credit, despite the fact that four in five Americans have never defaulted on their obligations.”

Using AI, Upstart claims it offers a higher approval rate for traditionally underserved demographics. In 2020, the Upstart model approved 30% more black borrowers than a traditional model and offered 11% lower interest rates. Likewise, he approved 27.2% more Hispanic borrowers with a 10.5% lower interest rate.

If you want to take out a personal loan but your credit score is lower or no credit at all, there are still options available to you. Visit Credible to start the application process and enter your information to view the options of several lenders at the same time and choose the personal loan that suits you best.


CFPB pushes banks to offer small personal loans

Since the Biden administration took over, the Consumer Financial Protection Bureau (CFPB) began crack down on payday lenders.

“I am pleased that the court has reaffirmed our ability to protect borrowers from unfair and abusive payment practices on payday loans and other markets covered by the rule,” said Acting CFPB Director Dave Uejio, in September after one of the office’s payday loan rules was confirmed in research.

To help banks move into the smaller lending space, the Federal Deposit Insurance Corp. (FDIC) published new guidelines banks last year to offer small loans. In addition, the CFPB has actively encouraged banks to offer low-value loans, and even released a model to help them do so in a way that will keep them in compliance with the office’s banking regulations.

Using today’s technology and AI, lenders can get a better idea of ​​consumer behavior and creditworthiness, which could allow them to expand access to credit and lower mortgage rates. interest because they take less risk.

If you need a personal loan, contact Credible to speak to a personal loan expert and get all your questions answered.

Have a finance-related question, but you don’t know who to ask? Email the Credible Money Expert at moneyexpert@credible.com and your question could be answered by Credible in our Money Expert column.


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