Reasons Why Consumer Lending Is Ready for an Overhaul

Old Methodologies. Although it’s seen as the industry standard, the FICO model is decades old and is limited in the scope of data it considers. New lending models from several new lending players see borrowers as “more than just a score,” analyzing thousands of data points to determine creditworthiness. While the data points will include FICO when a score is available, creditworthiness is judged in a much more holistic manner.

A Lack of Transparency. The loan process is an often slow, analog and opaque process, especially for consumers. From application to signing the contract, more modern lending technologies allow for consumers to handle the entire process on their phones. The process becomes much more appealing for borrowers who prioritize transparency and speed.

Complexity:  Many lenders can pre-approve borrowers “quickly” based on a soft credit pull, but the formal approval process can move at a much slower pace. The technology exists to provide faster, easier approvals and funding; companies working toward transforming the industry are making use of such technology, making the process friendlier for everyone involved.

Good Consumers Being Left Out. Would-be car buyers with no Social Security number, no ITIN, or thin- to no-credit histories are usually denied loans for vehicles they desperately need to be productive and successful. Rather than relying on a single source, such as a FICO score, to determine the consumer’s ability to secure a loan, companies are disrupting tradition by introducing never-before-seen levels of fairness, equity and opportunity through holistic approaches to the loan process.

Buyers Getting Stuck with Non-Competitive Loans. Predatory loans with high rates, long terms and little protection are common for those who don’t conform to traditional credit scoring models. When consumers are limited in terms of their borrowing options, the outcome can be far worse than getting no loan at all. New models and technologies that consider a much broader set of data points eliminate the need to have a traditional credit score but doesn’t disqualify buyers from securing loans with competitive terms.

Dealers Losing Opportunities. Car dealers have become accustomed to turning away car shoppers with thin to no credit history. This limits their revenue and creates bad feelings and reputations. Dispensing with outdated credit scores that only offer a narrow snapshot of a buyer’s creditworthiness allows dealers to turn those buyers into loyal, happy customers.