Bad Credit Loans Are Here to Stay – Despite Tighter Lending Standards
Bad credit loans seem likely to continue despite tighter lending standards and increased federal and state regulations. The debate over regulating the financial industry with tough reforms, limits on interest rates and other requirements has seesawed back and forth.
Democrats created the Consumer Financial Protection Bureau to regulate the financial industry after mismanagement became apparent during the mortgage crises of 2008-2009. Unfortunately, Republicans charged that the cure was worse than the disease, and President Trump has vowed to abolish the CFPB or limit its power to regulate financial institutions unilaterally.
Despite tougher regulations and criticism of bad credit lenders, the demand for their services remains strong with the public. Given the back-and-forth of politics, it seems likely that these loans will remain in some form in brick-and-mortar stores and certainly online. The states, which are constitutionally empowered to regulate the financial industry, have moved to adopt or change financial regulations based on their political leanings and position in the CFPB debate.
Although Credit Approvals Continue to Tighten, Bad Credit Loans Survive
Short-term lenders of bad credit loans continue to face a hodgepodge of new and existing state regulations. It seems that short-term loans might not be able to survive as neighborhood brick-and mortar stores in some states. All retail stores face increased competition from online operations. The Post-gazette.com reports that brick-and-mortar stores are folding as real estate mortgages change hands, balloon payments become due and real estate values rise.
Coupled with declining sales, increased costs and more regulations, many retail operations are folding. That’s especially true in the financial industry. Even respected top national banks like Wells Fargo face difficulties staying afloat. Wells Fargo was forced to close a branch in a prime location in 2015 along Route 28 in Pennsylvania. Short-term lenders–facing additional pressure from uncertain regulations–have begun to concentrate on their online operations.
The Criteria that Banks Use to Approve Personal Loans
Bad credit loans online come in many forms. Lenders offer loans in varying amounts with different standards for approval. Getting approved by traditional banks and lenders is becoming increasingly difficult even for people with high incomes and good credit scores, so alternative lenders are becoming more popular with rank-and-file borrowers of all financial backgrounds.
According to an article posted at Bankrate.com, getting approved for a bank loan requires the following qualifications:
- Source of Income
The higher your income, the more likely you’ll be approved for a personal loan. Even more important is your debt-to-income ratio. A low percentage increases your chances of getting approved. It also helps if you have unused credit available on your account’s–maxed-out credit is a red flag to traditional loan officers.
- College Education and Career Status
Loan approvals from traditional lenders often go to people who have professional careers and have demonstrated job stability. Unfortunately, people without college educations or educations from community and smaller colleges don’t get as much consideration as those who attended highly respected institutions.
- Good Credit History
A good credit history doesn’t just involve paying your debts on time. You need a history of paying your debts for multiple creditors to qualify for the best rates. It’s important to check your credit history report to see if there are any mistakes before applying for loans. You could be denied, and the denial becomes a part of your credit record and reduces your creditworthiness.
- High Credit Score
It’s important to have a high credit score, and Investopedia.com suggests the following explanations for key credit range scores:
- Excellent credit: Scores between 720 and 850 are likely to qualify you for any type of credit.
- Good credit: Scores between 690 and 720 are considered good and will qualify you for approval for lots of credit opportunities, but you might not get the most favorable rates.
- Problems credit: Scores between 650 and 6980 are considered problematic and indicate that the person applying for credit has some questionable repayment issues.
- Poor credit: Scores between 350 and 650 are considered poor. People with bad credit face denials of credit, difficulties buying a car or home and the highest interest rates.
- FICO Ranking Criteria
Your payment history counts 35 percent in determining your FICO score according to Myfico.com. Length of credit history counts 15 percent, and the amount you owe counts 30 percent. New credit and your credit mix count 10 percent each.
Payday lenders have offered loans to people with bad credit for many years, and despite criticism from consumer groups and some political activists, these loans remain popular with mainstream borrowers. Many respected studies–including a white paper on regulation posted at Object.cato.org–show that banks and credit unions find it difficult or impossible to offer short-term loans to people with poor credit. These institutions have trouble competing with payday lenders.
Seesawing Regulations, Competition and Consumer Demand Ensure a Future for Poor Credit Loans
The Cato study found that, although APRs for short-term loans often average or exceed 391 percent interest, these rates don’t tell the complete story. Administrative costs are expensive even when companies earn interest only for about two weeks. The default rates for bad credit loans are considerably higher than industry averages. The lenders earn an average of $15 on a $100 loan, and they must pay their staff members and overhead costs out of this income.
That’s why an increasing number of banks and political interests have begun to take a hands-off approach on regulations. Many believe that the free market is the best regulator for the financial industry. Alternative financial products online recently led a resurgence in lending activity globally.
Finding Bad Credit Loans Online Made Easy
Bad credit loans online include all types of lenders and loan products, so it can be difficult to determine which loan alternative is best for you. Of course, the best solution is to limit any borrowing as much as possible and concentrate on rebuilding your credit score to qualify for better interest rates. However, that’s not always possible when you need cash.
Finding the right lender is easier when you use an online service. You just need to fill out a profile, and these interlocutors can provide a list of lenders. Each has its own interest rates and loan policies, and you can apply to the lenders who most accurately match your needs.
“The More Things Change, the More They Stay the Same”
Regulations seem likely to continue to swing from greater regulation to deregulation. Alternative loan products are emerging, and many of these are bad credit loans online. Regulations may tighten, new loan products may become available, but consumer demand for loans continues despite the artificial and changeable loan standards of traditional financing companies.
It appears that bad credit loans–in one form or another–will remain a permanent fixture in the financial industry. Regardless of whether you think these loans are good or bad, there are many people who suddenly find that their creditworthiness has slipped or bank approval standards have tightened. Even people with less-than-perfect credit need financing alternatives, and a good online matching service can help people find bad credit loans online that meet their needs.