This New Digital Era of Small-Dollar Lending Lifts All Boats
By Seth Brickman, QCash
June 28, 2023
Perhaps you have heard some of the good news coming out for the advantages of payday alternative small-dollar lending (PAL) in the first half of 2023. Assisted by digital automation, the total for such low-cost personal loans hit $227 million, a new high, up 30 percent from 2019.
Such rewarding developments offer hope for the credit union industry, especially for those executives still uncertain about revamping their lending departments or implementing updated digital small-dollar lending fintech into their cores. To them, we can only say the future's looking good, both for members and their cooperative.
To kick off QCash’s monthly series “The Case for Small-Dollar Loans,” we want to begin the journey by laying out the benefits that will help members find their way back on the path to financial health and well-being through the foundational product of the credit union movement itself, small-dollar loans.
Building Member Credit
Seeing a credit union member build their credit, and ultimately, a new life with new opportunities, is one of this industry's most rewarding accomplishments, and it happened with one of QCash's credit union partners. One of their members was working to improve on a credit score that reached as low as 400. After using five separate small-dollar loans through his local cooperative, that member was able to build up his credit score to 650. He is now a first-generation homeowner.
People need to hear such inspiration in these days of financial uncertainty and doubt, especially when it comes to the financial services industry today. We say that because, according to Data Point, one in 10 Americans still remain credit invisible. Even further, two in three Americans, or 66 percent, still remain financially unhealthy.
Probably one of the most important factors for a member – particularly lower-income members – to build back their credit score is reestablishing the base of their financial health goals by taking out an affordable and responsible small-dollar loan from their trusted credit union.
According to Credit Karma, a small-dollar loan can help with a few factors that influence credit scores. Taking out a dependable loan and, most importantly, making all their payments on time, remains a powerful benefit in reconstructing a member’s positive credit profile. This establishes on their behalf a record of dependability, trust and a track record of regular activity.
How much debt the member has been carrying, and what kind, reflects how well they regularly deal with credit. Getting and consistently paying down a small-dollar loan according to the specific terms can assist in showing the credit union the member can indeed manage their credit.
An extended credit history can also display positive activity over time, thereby strengthening their credit profile; “over time” being the crux. If the member has never used credit before, getting a small-dollar loan can assist in starting the process to better credit awareness.
If the member’s credit history is limited, possessing diverse forms of credit like credit cards, small-dollar loans and mortgages, typically boosts one’s credit score.
Recent credit can also influence a member’s credit profile. When a member applies for a small-dollar loan – or any type of loan – the credit union may run a detailed report to check on their existing credit history, which can lower the member’s credit a few points. Not to worry, a single, individual inquiry won’t stop their score from recovering in a few months.
Instant Accessibility, 24/7
The world today works on a clock that didn’t even exist 20 years ago. Fortunately, we also have the tools in financial services to help credit unions keep their members on their schedule, at their pace and at their request.
So when a member suddenly discovers a monthly bill that snuck up on them, they can just go to their mobile phone any time of day, 24/7, click on their credit union’s app, and apply for their respective digital small-dollar loan product in literal seconds. If it’s a QCash digital lending product, the member applies with six clicks, and has their specified amount automatically deposited in their account within 60 seconds.
That’s the credit union advantage when it comes to serving your members what they need, when they need it; giving them the confidence to know their credit union has the tools, knowledge and nurturing spirit it takes to serve them the right way.
No Credit Score
Determining consumers’ credit scores isn’t as easy – or never was as easy – as a simple, one-dimensional credit score. So limiting, it never took into account such alternative data checks as banking data, rental history or even income to determine a consumer’s ability to pay back the loaned amount.
Thanks to digital lending fintech like QCash, that era of limiting info is increasingly over. If a member with bad credit wants to apply for a small-dollar loan but remains nervous because they won’t get approved because of their subprime credit score, more credit unions are now able to work with the member to establish a payment schedule they can manage.
Fintech continues to change the game for financial inclusion and health for America’s credit union members. Connect with QCash to learn more.
QCash
QCash Financial offers relationship-based small-dollar loans. The CUSO’s lending platform enables credit unions to help their members responsibly when they face financial challenges from unexpected life events. From application to account funding, the process is complete in under 60 seconds, no credit check required, and completely digital, needing no effort from staff. When life happens, be there for your members anytime, anywhere and from any device.
Ready to level-up your members’ experience? Consider Life Event, Specialty, and Financial First Responder Loan programs, all using QCash’s patented relational underwriting.