Our Debt Relief Attorneys Near You Weigh the Pros and Cons of These Alternative Loans
If you’re struggling with debt from credit cards, medical bills, and more, you’ve likely done some internet searching to see if you can get answers. During your search, you may have come across a personal loan called a fintech (financial technology) loan. A fintech loan is a loan from an online lending firm that provides personal credit for consumers.
The most common fintech loans are unsecured personal loans, which are often used to consolidate and pay off your debt. However, fintech loans differ from personal loans you may be able to get at a bank.
Personal loans that your bank offers use significant evidence to determine the likelihood that you will pay the loan back. However, not everyone has the credit score and debt-to-income ratio that make them eligible for the most competitive personal loans from a traditional lender.
Fintech loans provide a chance to qualify for a personal loan through alternative data. Alternative data refers to personal information that helps the lender determine whether you are eligible for a loan based on nontraditional metrics.
Those who have significant debt are told that they may be eligible for a fintech loan to consolidate their credit card debt based on:
- Proof of paying rent on-time
- Utility bills
- Your social media profiles
- Internet activity
- Level of education
On the surface, a fintech loan may sound promising, given that many people who are feeling the effects of overwhelming debt can still find a way to get a loan. However, it is important to consider both the value and the downsides of a loan like this. Keep reading to weigh these pros and cons for yourself.
The Fintech Loan As a Potential Debt Relief Solution
The U.S. Government Accountability Office (GAO), which exists to protect taxpayers and consumers, weighs in on fintech loans to understand what benefits they provide and risks they pose for consumers.
The GAO presents three upsides to considering a fintech loan:
- Fintech loans provide an opportunity for those who aren’t able to get a personal loan or line of credit using the more typical avenues, such as their bank.
- Fintech loans are able to make determinations about whether to extend credit more quickly than banks, who may have prolonged processes.
- Using alternative data means that you don’t have to provide the same level of information to the lender, which can potentially protect consumers from fraudsters posing as fintech loan providers.
The Risks Of a Fintech Loan For Debt Relief
Fintech loans also pose a significant risk to those struggling with debt. Harvard Business School’s Working Knowledge blog notes:
- Fintech loans are twice as likely to go delinquent and unpaid than bank loans.
- Some fintech loans charge additional premiums for those without established credit or poor credit.
- There is no requirement that fintech lenders must determine your ability to repay.
The U.S. Government Accountability Office (GAO) also points out several dangers of considering a Fintech loan to get debt relief:
- Discrimination concerns: Fintech lenders may discriminate against you based on where they determine you live and your personal identity. For example, if a lender searches your social media and determines that you live in an economically disadvantaged location, and you can be identified as part of a historically disadvantaged class, they may choose to adjust your interest rate to their liking.
- A lack of legal protection: You may have little power or recourse to fight how fintech companies determine your loan eligibility.
- Your personal data may be at risk: Cybersecurity and safety should also be considered, as some fintech lenders may be tempted to uncover additional data from potential borrowers to determine your eligibility or deny your request for a loan.
Fintech lenders irresponsibly make loans available to those struggling with debt relief, claiming that their role is to help people regain their financial independence through an alternative method.
However, if you’re already struggling to repay debt (which means your credit score is likely not ideal) taking out a fintech loan is simply swapping one high interest rate for another. If you can’t pay your credit cards now, you’re likely not going to be able to pay them with a new fintech loan.
Is a Fintech Loan a Smart Move For Debt Relief?
Given the information revealed in this article, a fintech loan has its benefits, but can also pose risks for consumers. Those struggling with debt should consider the many alternatives that can potentially help you gain financial freedom faster and at a lower cost.
These solutions include:
- Working with a debt relief attorney near you to settle your debt for 50% of what you owe.
- Seeing your debts discharged in Chapter 7 bankruptcy.
- Getting rid of your debt after a three-to-five-year, manageable repayment plan in Chapter 13 bankruptcy.
Solutions beyond the fintech loan exist. You can get rid of your debt without a loan that comes with serious warnings from credible institutions. The journey toward freedom begins when you put aside the riskier solutions and learn more about the options that are in place so you can thrive.