Lenders are using AI to offer low-credit personal loans to borrowers

New fintech lenders are using AI to expand access to credit and offer personal loans to low-credit borrowers. (Stock)

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

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 three-digit percentage rates 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 almost doesn’t exist there,” Upstart co-founder and CEO Dave Girouard said 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 are experiencing financial difficulties and need to take out a personal loan, but do not have a good credit history, you can visit Credible to find lenders who have personal loan optionseven for those with bad credit.

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AI could improve access to credit

Using AI to underwrite new loans allows lenders to use more data than is available on a credit report when making their loan decision. For example, Upstart personal loans use more than 1,000 variables to assess each application, going beyond 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 banking industry leaders to identify and reduce barriers to accessing credit.

“Historically, an overreliance on traditional credit scoring has meant that not everyone has had the opportunity to establish 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 a bond.”

By using AI, Upstart says it delivers a higher approval rating for traditionally underserved demographics. In 2020, Upstart’s model approved 30% more black borrowers than a traditional model and offered 11% lower interest rates. Likewise, it approved 27.2% more Hispanic borrowers with a 10.5% lower interest rate.

If you want to take out a personal loan but have a lower credit score 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 multiple lender options at once and choose the best personal loan for you.

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The CFPB pushes banks to offer small personal loans

Since the Biden administration took office, the Consumer Financial Protection Bureau (CFPB) has started crack down on payday lenders.

“I am pleased that the court has reaffirmed our ability to protect borrowers against unfair and abusive payment practices in the payday lending industry and other markets covered by the rule,” the CFPB acting director said. , Dave Uejio, in September after one of the bureau’s payday loan rules was upheld. to research.

To help banks move into the smaller lending space, the Federal Deposit Insurance Corp. (FDIC) issued new guidelines last year for banks to offer small loans. In addition, the CFPB actively encourages 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 office banking regulations.

Using today’s technology and AI, lenders can get better insight into consumer behavior and creditworthiness, which could allow them to expand access to credit and lower interest rates. interest since 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.

Do you have a financial question, but you don’t know who to contact? Email the Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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