Bank Repayment Rate Hits All-Time Low; Nontraditional Lenders Step In To Help

Banks express great distress after a study unveils that a big majority of the loans taken through these traditional financial institutions are at risk of not being repaid. This is because the unemployment in some states still reaches record high. Traditional banks offer long term loans that would take a minimum of 18 months per term and thus, they will be the first one to get affected by the continuing struggles in employment.

According to the Bank of America, the bad loans deposited in banks all over the country remain to be one of the major concerns of the financial market. Accordingly, if loans are unpaid, the money flow would be restricted and the availability of loans to other applicants would be limited.

Other than that, the increase in the ratio of unpaid loans has resulted in banks tightening their belts on the succeeding applications. As such, the affected companies revamped their requirements for application to include a higher minimum requirement for credit score, more proof of financial stability and better collateral. Autos, expect for those that are really expensive, are no longer accepted as collateral.

Because of these new set of requirements in response to a potential meltdown from the financial sector of the economy, consumers find it more difficult to acquire a loan. As for those that already have loans, loan bailouts are becoming their next best options.

How Nontraditional Lenders Help

When nontraditional lenders came into the picture, the consumers breathed a sigh of relief. Nontraditional lenders offer convenience and the promise of loan approval even to those with bad credit. There is neither collateral needed nor a lengthy background investigation. As long as you can present sufficient proof of active employment, your loan application could get approved.

The biggest difference between traditional and nontraditional lenders would be the means with which consumers are encouraged to pay back the loans that they took. Bad credit loans from lenders are short-term only and must be paid back in a month’s time. This makes it possible for consumers to take advantage of the loans as if they’re just part of their monthly expenses and then pay for them on their next payday.

Next, bad credit loans accessible online come with higher interest rates and fees. The higher interest rate and fees serve as the protective nets of lenders and consumers. They make you think twice before considering bad credit loans from online companies. These facts also keep you within the primary use of the loans, which is to finance emergency expenses.

In addition, the higher interest rates and fees force you to pay your loans once they are due. Otherwise, another set of fees will be applied and your bad credit loans will be pushed another term.

Apparently, nontraditional lenders actually call for consumers to be more responsible in their finances. They provide hands on instruction on lending and the importance of money – something that everyone would need to know.

Aside from the help provided by nontraditional lenders, the government has also recently announced its plans of a rescue loan. This would mean that a set amount will be released for financial companies to patch up their losses and continue to operate. Other than that, the campaign against unemployment continues to be on the high. The government has also made several steps to attract foreign investors to invest in the country and therefore, create more jobs.

The issue on why banks are getting an all-time low repayment percentage is based on several factors. Hence, the resolution should come from different sectors too. The government and the private lending institutions are already joining to provide better alternatives to consumers. It is time that you do your part too.