Between artificial intelligence streamlining the loan vetting process and cloud computing software protecting online consumer data, 21st-century tech has changed the face of consumer lending. As inflation soars at a record-breaking pace, those struggling to make ends meet often need cash quickly, and fintech solutions enable fast-acting loan processing for consumers. Whether setting up a home equity loan, investing in an interest-only mortgage, or scoping out a buy-now-pay-later option, consumers can take advantage of time and money-saving tech.
In the current landscape, individuals need more financial flexibility to pay for everyday goods and services, which leads to an increase in lending services. Consequently, fintech developments are skyrocketing with no signs of slowing down. Read on for eight must-know consumer lending trends taking 2022 by storm.
Core lending software
Core lending software is becoming the norm among future-forward lending companies because applications automate previously lengthy parts of the lending process. By merging multiple steps into one, core lending software allows both underwriters and consumers to enjoy a speedier, uninterrupted lending process.
Take a prospective homebuyer, for example. Under traditional models, a buyer typically works hand-in-hand with a realtor in addition to a separate lender. Before contacting a realtor, they use a lender’s pre-approval process to determine their budget and exchange preliminary income and debt information with the bank. The lender then produces a letter indicating approval, and the client can move on to secure a home contract with their realtor.
On the other hand, core lending software eliminates separate steps in the loan-approval process. That way, future homeowners can apply and secure a mortgage through the realtor’s web-based portal or platform.
Qualifying applicants move beyond the FICO score
A person’s FICO score is one of the primary metrics creditors use to approve or deny applications. One’s score can range from 300 to above 800, incorporating a person’s credit history, payments, balances, and the number of loans and revolving credit accounts.
However, a FICO score may not be entirely accurate or available for individuals during the beginning of their financial journey. For example, many young adults and self-employed individuals do not have robust credit histories. Thankfully, new formulas and algorithms can account for more than simple credit history, taking education levels, spending habits, and job histories into account.
With an approval process that isn’t cut and dry, consumers previously considered high risk might have a better chance at approval. However, procuring financial assistance may become more complicated for those with outlying risk factors previously unrepresented by FICO scores.
Fewer intermediaries because of blockchain
Another time-saving innovation is blockchain technology, which eliminates the need for multiple intermediaries during the lending process. Consumers can now access and maintain records of applications within a single platform, allowing for anonymity and a higher level of security.
Now, consumers can use a single portal rather than logging in to separate platforms and applications. Plus, all mortgage paperwork, credit card applications, and personal loan details remain centralized in one location. Ultimately, blockchain technology lending companies both time and costs by optimizing documentation and approval processes.
Chances are, many consumers have already noticed buy-now-pay-later options while checking out online during hazy late-night shopping sprees. New-and-improved credit-on-demand features allow buyers to pay for larger purchases in smaller installments after a quick, less-stringent qualification check.
Everything from travel and vacation packages to the newest smartphone models has buy-now-pay-later options. For companies looking to reach a broader range of customers, partnering with an installment software can entice potential patrons, resulting in revenue bumps.
In addition, manufacturers and service providers get their revenues upfront, while consumers find larger purchases more affordable. With inflation, purchasing an $800 iPhone or a $2,500 vacation could prove impossible for most. With buy-now-pay-later options, necessities and luxuries alike will feel more feasible.
A positive aspect of inflation for homeowners is rising property values, which means more equity for owners to leverage. As a result, home equity loans and financing are making a comeback.
Consumers can use home equity to pay off credit cards and medical bills, consolidating debt under more favorable terms. Additionally, individuals can leverage their home equity for property improvement projects and repairs. Higher amounts of equity mean the loan to value on first mortgages decreases, giving lenders and consumers more wiggle room with home equity approvals.
Artificial intelligence and machine learning
Approval and underwriting processes typically involve checking for fraud and verifying an applicant’s income. However, with state-of-the-art AI and machine learning tech, the days of manual input and drawn-out due diligence processes are coming to an end. Technologies like ultra-specific algorithms and machine learning are doing most of the heavy lifting.
Plus, AI-based tools aren’t simply considering the information on the physical application. Tech can now better detect fraud and potential roadblocks by analyzing consumers’ behaviors. So, whether you spend five minutes or two hours reviewing financing options, lending tech software will know.
In the past, interest-only home loans were frowned upon because the borrower wasn’t initially paying toward the principal balance. However, with rising life expectancies and household costs, interest-only mortgages can help ease everyday expenses.
With interest-only mortgages, borrowers can qualify for larger loans, enabling monthly payments to decrease and opening up time-frames for principal payback deadlines. Ultimately, interest-only options allow consumers financial flexibility and a little breathing room.
Many consumers are well-versed in dealing with lenders and banks with physical branches. However, loan applicants can now apply and receive funding through updated cloud-based services and platforms.
Additionally, digital lenders rack up lower overhead costs due to location flexibility, allowing lower interest rates and increasing competition among lenders. Over time, consumers will grow accustomed to lending technology through mobile apps and web portals, optimizing service and approval times.
Financial technology and economic pressure are changing the face of industries worldwide. As 2022 progresses, consumers and lenders alike can expect to see software platforms, streamlined approval methods, AI-based interfaces, and digital creditors soar into the spotlight.