Credit is more accessible than ever before – but this is a good thing?

Fintech is sweeping the banking sector, but there are two good news and bad.

Go to the local bank branch and fill out the loan application may be only a handful of days. Now, if you want to get a mortgage or car loan, there are dozens of sites where you can receive a quote in the type of information you and just a few minutes.

In general, these lenders provide credit to who would not by traditional bank approval, and sometimes they even offer a lower interest rate.

Credit means broader access to vulnerable populations such as low-income consumers, immigrants and the rural population, have been home or car or just to cover unexpected emergencies better opportunity will not fall into unsustainable debt thank sky -HIGH interest rates.

However, in a recent credit card market report, warned that this increase in access with its own set of risks and unintended consequences, such as the possibility of discrimination Consumer Financial Protection Bureau (CFPB ).

Technology is how to increase access to credit

This increases the access to a large extent thanks to fintech industry, which has been increasingly sophisticated use of technology, such as machine learning and data analysis areas to make loans process more efficient.

Applicant who was rejected for no credit or bad credit ratio has actually repay the loan period. Unfortunately, their credit score itself does not reflect the ability and willingness to repay.

Online loans and credit card companies to start using more data and new algorithms to identify those without credit and low credit customers who are likely to repay the loan. They then lend money to them, tend to be more reasonable price than they would get elsewhere.

By using alternative data, such as from a utility, telephone or online service, insurance claims, payment history and more, these companies can draw fintech of each loan will be how dangerous it is a more comprehensive picture.

Previously, the only option many consumers are borrowing from payday lenders, etc., which approved almost anyone, but only because they charge astronomical interest rates high. Now, some low credit consumers can be changed by a reasonable price online loan approval.

How online credit card loans and start-ups affect consumers

A fintech credit research, Philadelphia and Chicago, the Federal Reserve Bank announced performances, online lenders will be some of the borrowers of subprime mortgages a much higher rating category.

For example, in 2015, who won more than 25 percent of subprime borrowers credit score class B from major online lenders. Lenders use the scale from A to G, where A is the highest level. More importantly, the study found, given the same level of risk, the borrower may obtain a loan with a lower interest rate online.

If you want to know if these online lenders have loans to people who can not afford to borrow, the answer seems to be no. The survey found a high correlation between the performance rating system and loan online lender borrowers, as well as the evaluation level in predicting who will become their loan defaults good job within a year.

As for credit cards, fintech just barely beginning to enter the market, so the data is unclear. Many startups now offer alternative is the use of data at a reasonable price Approval consumers do not have credit cards, sometimes without any cost.

On a hot new credit card Millennials and Gen Zers not even offer cash back rewards credit sales. Previously under fire from people who think it’s irresponsible, credit card, designed to help young people establish credit reward criticism. After all, cash back rewards cardholders can encourage overspending, new cardholders may be tempted to rack up A Balance, landing their debt, and from the outset damage your credit. Students have to face another new reward credit card, no credit history at no margin, and allow international students do not have a Social Security number to provide alternative documents to verify their identity.

Take more dangerous than credit card loans, because they are often equipped with high interest rates, and make it very easy to swipe away the blind, accidentally own tens of thousands of dollars in high-interest debt. More importantly, the loan is often used to make necessary purchases like a car, or investment like a house, credit cards are often used for non-necessities like shoes and video games.

On the other hand, many of these credit cards to underserved ö˚FPeople the opportunity to say what is probably the easiest and cheapest way to establish credit – often using a credit card and pay it off every month discrimination fintech algorithm inherent turns out, machine, as humans, can be biased. After all, human metapneumovirus create them. The use of artificial intelligence to develop their own algorithms Fintech lenders are not immune.

2020 study done by the University of Berkeley, University of California found that lenders charge borrowers interest rates fintech Latinx and African Americans are six to nine months basis points. Ultimately, these groups $ 250 million more in interest on loans to pay between $ 500 annually million.

However, face-to-face loan responsible for these borrowers higher interest rates. In fact, face to face and fintech lenders tend to implement this same prejudice, show that the algorithm creates prejudices of people who hold them through the mirror. This is how to play out

An example is the information fintech other lenders might use, such as geographic location, to identify potential borrowers mortgage rates. This can be the basis of race tend to be isolated from the city’s racial prejudice. However, the physical memory may be formed by providing different velocity tables for implementing this process at the same position of the different branches.

There is a bright side fintech loans, when it comes to discrimination. The study found that although physical banks tend to be a higher rate than white applicants rejected minority applicants the same day Ë credentials, fintech lenders do not when it comes to whether the application is approved or denied discrimination. This may be due to increased competition in the online loans has been launched, and the borrower can now shop around for the best loans ease. Channel

Increase access to credit has its own set of dangers and pitfalls, but it is very important that we remain vigilant as fintech continue to erode traditional bank. However, the new banking technology must also provide affordable loans to underserved populations and promote more possibilities of equality.