The Role of Small Loans in Today’s Consumer Economy

Couple applying for a small loans package

Small loans play an oversized role in today’s consumer economy

Small loans are quickly gaining influence that extends beyond their percentage of the economy. Smaller online lenders increasingly employ cutting-edge digital tools to provide their customers with faster decisions, expanded access to lending associates and greater credit options. A healthy market for small loans can stimulate business, increase the Gross Domestic Product, or GDP, and encourage faster and more agile productivity according to Marketrealist.com.

Credit is crucial to a thriving economy, and banks have traditionally benefited from low interest rates and expanding credit. This expansion of credit generates an increase in the number of loans, credit card offers and other forms of consumer credit. Available credit improves the economic outlook, and the more that consumers are willing to spend, the greater the demand for credit grows.

There are, however, risks of expanding credit and loan offers. Ideally, credit availability reflects the genuine strength of the economy, but irresponsible lending and borrowing practices can cause serious repercussions. The mortgage crisis of 2008-2009 clearly illustrates this risk. Wall Street abuses and banks granting mortgage loans to people with bad credit resulted in massive defaults on mortgages, drops in the value of property and a massive number of bankruptcies. It’s interesting to note that these problems resulted from large mortgage loans, which were secured by property, and not small, unsecured loans.

Small Loans Fulfill a Critical Role in Today’s Volatile, Consumer-Oriented Economy

Alternative lenders, many of which are known as marketplace or peer-to-peer lenders, generated $36.5 billion in loans just in the United States in 2015 according to Mercatus.org at George Mason University. This small segment of the lending industry also led the lending recovery of 2016-2017. These lenders target, satisfy and retain customers by providing digitally enhanced marketing tools, great user experiences online and easier access to small-dollar loans for people with a range of credit profiles.

Small, innovative lenders seem to be leading advances in lending practices, increased consumer satisfaction and expanding global productivity. Investopedia.com reports that credit availability goes through a cycle of expansion and contraction. When the economy is healthy, interest rates are low, funds become easier to borrow and loan options expand. Credit availability is determined by the level of risk that lenders face. When credit peaks, there is a natural contraction period when interest rates rise, lenders tighten their lending criteria and the available credit shrinks.

Small Loans for Bad Credit Function as an Economic Release Valve

Small loans for bad credit might seem unimportant in the global business environment, but alternative lenders often stimulate innovation and take risks that traditional lenders won’t. During tough economic times, many responsible borrowers default on their loans and declare bankruptcy. Middle class consumers and those from lower socioeconomic backgrounds struggle, and small drops in credit scores force many borrowers to pay higher interest rates or be unable to get a traditional loan product.

Although the interest rates might be higher for small loans with bad credit, free market forces help to regulate the available credit. Borrowers might have to pay a premium, but these small-dollar loans can prove beneficial in emergency situations and provide opportunities for business-savvy borrowers. These loan products act as an economic release valve to bleed off pressure from economic stagnation.

Small Loans Online Deliver Convenience that Mirrors User Applications on World-Class Marketing Platforms

Today’s connected consumers–often referred to as Millennials but can include digitally savvy consumers of any age–no longer cultivate direct relationships with neighborhood banks according to a report posted at Economictimes.indiatimes.com. These consumers, regardless of their socioeconomic standing, rely on apps, user-friendly websites and trusted third-party services to compare loan products, hunt for deals and research the rapidly emerging alternative loan products.

Banks and Traditional Lenders Now Play a Catch-Up Game

Savvy alternative lenders and financial technology start-up companies are scrambling to carve out a section of the lucrative lending industry according to Bain.com. Banks, which had often ignored alternative lenders, online lenders and short-term loan products in the past except to criticize them–are increasingly adopting these companies’ digital marketing techniques. Unfortunately, banks are moving slowly, and most have only begun marketing and selling loan services in the digital ecosphere.

Alternative providers of small loans online now focus on delivering a great online experience to specific customer profiles that include students, start-up entrepreneurs, people who have bad credit and those who seek multiple financing options such as as crowdfunding, complex loans, small business loans and cross-channel lender-locating services.

Banks, however, struggle to meet their digital marketing goals, and they still have trouble in making faster decisions on loan applications by using digital technologies. Banks haven’t fully grasped how digital tools can engage customers, provide transparency in lending practices and provide a new suite of hundreds of loan alternatives to satisfy the demands of an increasingly sophisticated consumer.

The Interconnectedness of the Economy, Available Credit and Lending Policies

Small loans grow into expanded business services and larger commercial loans as a natural part of the credit cycle. Personal credit was once considered to be an unethical resource that allowed people to live beyond their means, but that’s seldom true. The costs of credit always come due, and wise borrowers choose their loans and credit options carefully or face devastating results. This caution applies to billionaire financiers and people struggling to feed families in a weakened economy.

Small loans for bad credit can be used for worthwhile or reckless purposes. Responsible borrowers use loan assets to buy cars that provide long-term value, get a better education, repair their homes and invest in their communities. Consumers once favored saving money to buy big-ticket items, but digital marketing and instant gratification have changed that trend. Small loans online now make up a critical part of the world’s economy, and these loans can stimulate sales and productivity, increase the GDP and provide emergency resources during tough economic times.

Competition is crucial to innovation and growth, and small-dollar and alternative lenders have generated competition from traditional lenders. Banks are following the digital practices of creative lenders, and credit unions now offer student loans, small-dollar loans and collateralized loans for customers with bad credit who need a lower interest rate. Find out more about today’s consumer economy and the value of small loans for bad credit at the Personal Money Store.

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