You’ve probably heard the terms alternative lending and alternative lenders, but you may not know much about them. Luckily, we’re providing you with the details so you can decide for yourself whether they are the right financial choice for you.
What Is Alternative Lending?
Alternative lending includes all non-traditional funding options beyond banks and credit unions. The lender may be backed by private funds or the application method may differ from in-person institutions, but alternative lending offers many benefits you cannot find through normal borrowing channels.
The most common form of alternative lenders are now found online. They offer a variety of loans that cater to borrowers underserved by traditional lending institutions.
How Can You Use an Alternative Lender Help You?
Many borrowers cannot obtain loans through mainstream lenders leaving them without personal loan options. Fortunately, non-traditional lenders provide more choices which often fill the gaps left by traditional lenders.
Loans offered by alternative lenders can be used in many ways. This can include everything from a small cash loan to cover emergency expenses to a large installment to help a borrower consolidate their debt.
How Does Alternative Lending Work?
Alternative lending platforms offer a streamlined lending process that easily brings borrowers and lenders together. The lending process is faster and generally more accessible than traditional loans.
What Are Alternative Lenders?
Online alternative lenders rely on technology to rapidly pre-qualify borrowers for appropriate loans. While many companies only offer specific products, others act as brokers for a multitude of alternative lenders. As a result, you may be able to access anything from a small, same day cash loan to a larger installment loan with a long term.
The benefits of using a company that acts as a broker is that you can pre-qualify through multiple lenders using a single application form. You only need to supply the required information once and the company does the rest.
The emphasis placed on each factor when you apply for a loan greatly depends on the lender’s criteria. When you use a broker, they immediately analyze your data and provide you with the best possible loans available to you. You don’t need to scour the internet and waste time. The broker considers your desired loan size, income, debt, credit risk, and geographical location and only suggests alternative lenders that could be a great match for you.
Benefits of Alternative Lending
Besides the fact that alternative lenders offer a greater range of loans, choosing alternative lending solutions has many other noteworthy benefits.
Quick Access to Money
One of the primary benefits of alternative lending is that it provides you with easier access to money. Most online lender focus on a quick funds release, without a lengthy application process. That’s certainly not the case with mainstream lenders that often take weeks to finalize a loan.
Less Paperwork
When you deal with traditional lenders, paperwork is a given. First, you fill out a detailed application form. After that you must provide proof of income, such as a letter from your employer or a recent pay stub.
That’s not the case with most alternative lenders. They utilize online tools to streamline the loan process. Some use digital income verification, which eliminates physical paperwork, including proof of income requirements.
Furthermore, alternative lenders are usually the first to embrace new technologies, which can make financing easier and more accessible.
May Be More Lenient
Traditional lenders tend to follow very strict criteria when they’re deciding whether or not to grant you a loan. For instance, most lenders want to see a credit score of at least 600 before they’ll even consider you for a loan.
Fortunately, alternative lenders may be more lenient than traditional lenders. Lenders for personal loans often offer them based solely on your income. If you can demonstrate a steady cash flow, they may grant you a loan even if you have bad credit.
The same applies to those with a lower income. You could qualify through the right alternative lender even though mainstream lenders turn you down. With so many options available through alternative lending, borrowing has never been easier.
Large Range of Loan Amounts
Traditional lenders usually don’t bother with loans for smaller amounts. They consider it too much trouble for their financial return.
Equally, many traditional lenders only offer large loans to their best clients. Others only offer personal loans up to a relatively low set limit, regardless of client standing.
On the other hand, many alternative lenders offer what the banks and credit unions do not. As an example, you may be able to borrow as little as $200 up to as much as $35,000, even when mainstream lenders turn you down.
Less Reliance on Collateral
Traditional bank loans often require collateral such as vehicles, property, or other assets if they feel your financial position is too risky. However, alternative lending does not lean on collateral nearly as much.
Instead, non-traditional lenders tend to consider your income and your overall financial outlook. They may recommend collateral or a co-signer as a final suggestion when you can’t qualify otherwise.
Applications May Not Affect Credit
Banks and credit unions use “hard” credit enquiries. These stay on your credit file for years and they lower your credit score. If you apply through multiple mainstream lenders, it could send up a red flag on your credit report.
When you choose an alternative lender they usually use a “soft” credit enquiry. This enquiry does not lower your credit score. Consequently, you can apply through many lenders to compare what they’re offering with zero impact on your credit.
Credit Building Potential
Many alternative lenders report your personal loan activity to the credit bureaus. As a result, when you make timely payments you can build a positive credit history. This can potentially lead to a higher credit score and more favorable terms the next time you want to borrow.
Flexible Funding Usage
Traditional lenders typically only grant loans for specific purposes. Examples include auto loans, home improvement loans, etc.
However, alternative lending solutions seldom restrict funding usage. If you can demonstrate an ability to repay the loan and you meet the lender’s other criteria, you can probably use the money for almost anything.
Alternative Income Sources May Be Considered
Some alternative lenders will grant you a loan if you earn money in ways other than regular employment. That’s good news for many people with an alternative income source, since it is a common reason many can’t qualify for a personal loan.
Even better news is that these lenders may consider more income types than you might think. For instance, you may qualify if you are self-employed, receive alimony or child support, or draw a pension.
Options for Those Without a Credit History
If you have little or no credit history, you are not alone. Approximately 45 million Americans are credit invisible or don’t have enough credit movement to generate a credit score. Fortunately, even those in this position can turn to alternative lending solutions.
New Products Continually Appear
Alternative lending continues to fill gaps left by mainstream lenders. The number of alternative lending solutions is expected to double by 2028.
Furthermore, governments have strengthened legislation as lenders may operate in-person, online, or both. Consequently, most states require alternative lenders obtain licenses that bind them to the same laws as brick-and-mortar lenders.
Potential Drawbacks of Alternative Lending
Alternative lending may not suit everyone and it does have some potential drawbacks. Of course, this depends on the lender and product chosen, but these are some of the most common.
Interest Rates & Fees
Non-traditional lenders may charge you more to borrow if you have less established credit or a lower income. The higher interest rate compensates for higher lender risk.
Furthermore, some alternative lenders levy additional fees and penalties. However, many operate fee-free to compete with mainstream lenders.
Repayment Terms
Some, but not all, alternative lenders may offer shorter repayment terms to those with poor credit or little credit history. However, most can find personal loans with competitive terms if they do their due diligence.
Regulation
As mentioned, good alternative lenders for personal loans are licensed in each state that requires it. Fortunately, when you use a reputable broker each lender is vetted beforehand to ensure they’re reputable.
Try FlexMoney’s Extensive Alternative Lender Network
FlexMoney is your best option if you want to discover what personal loans are available to you, without hassle.
Our huge network of lenders includes a wide variety of reputable lenders offering top-notch online loans. Fill out one application and we will align you with your best possible options.
You could qualify for anything from a quick cash loan to a personalized installment loan. It’s simple, fast, and easy and the application process does not affect your credit scores.
Apply today and connect with the best alternative lending platform in the U.S. Borrow between $200 and $35,000 and use the money for anything from an unexpected car or home repair to medical bills.