Having worked in the consumer financing industry for years, I have now witnessed first-hand how two significant events have caused turmoil in the credit markets. First, the Financial Crisis of 2008-2009 and now the Pandemic of 2020. My first lending platform, LendPro, and now my latest platform, SweetPay, both work with several financial services businesses that lend to a variety of credit types. How these lenders function during these trying times is very revealing and accentuates the need for a multi-lender consumer lending platform.
The initial onset of an economic crisis sees lenders scrambling to assess whether their credit box and underwriting guidelines are still performing as expected. Is the consumer falling behind on payments? Has the consumer’s debt-to-income level risen above our comfort level? Which debt obligations does the consumer view as most important to pay?
There are many variables that factor into the underwriting of a personal loan. When economic crisis hits, what worked before doesn’t always translate to what will work now. So, credit decisioning models are re-evaluated against new data being collected. More than likely, credit decisioning will be modified. If you don’t have a multi-lender platform, such as SweetPay, you may be at the mercy of your lender’s altering credit decisioning changes.
The New Normal?
Consumers are not only shopping differently in the pandemic but they are managing their debt differently as well. Why? Well, we are in stressful times and personal, household decisions come under scrutiny.
When economic times are good, a consumer may have the mindset to take a loan out because they are very confident they can not only pay it off but will probably do so early. Banks love to lend in these times and will typically expand their credit criteria to capture some additional loans. When economic times turn sour, someone may be securing a personal loan out of necessity in order to meet expense obligations. This is when lenders tighten up and make qualifying for a personal loan more difficult.
What You Can Do
After the carnage from the Financial Crisis, I was telling myself I hope we don’t see something like that again. Well, here we are and, we’ve seen that movie too! Lending may look differently but, lending will still happen. If you’re a business, it’s how you offer consumer financing. If you’re a consumer, its how you go about applying for a personal loan.
A consumer-driven loan application process is a necessity nowadays. Put a link on your website so the consumer can easily apply from the comfort of their home. Offer Text2Apply in store so that your customer can use their smart phone to easily apply. And, make sure consumers know that you have multi-lender options covering all credit scores. This will give them confidence that they have a financing option to purchase in your business establishment.