By
Darya Rudz
August 17th, 2023
The lack of information equality for borrowers in lending marketplace is something this article will address by providing an overview of the lending landscape, and in doing so, offer some viable solutions.
The act of comparison shopping has never seen levels of activity in the past as it does today. That rings especially true when addressing the lending industry. It is an industry that has for years seen borrowers in the position to choose solutions that are right for their budget in theory, even if not in practice.
However, while there is some information that is oversaturated, others are scarce in the lending marketplace, which may come as a surprise due to the constant barrage of lenders offering loans. That lack of information equality for borrowers is something this article will address by providing an overview of the lending landscape, and in doing so, offer some viable solutions.
One of the efforts to combat the problem in the U.S is SMART Box. This was created by OnDeck, CAN Capital and Kabbage and is designed as a smart tool that identifies the costs for any loan borrowers are considering.
The purpose of SMART Box is to see transparency improved and act as a self-regulating tool within the lending industry with a goal of making it easier for borrowers to compare lenders and loans being considered. The side to borrowing that is most difficult for consumers is how the information is presented, and with SMART Box, it is presented in a standard format and language that is easy to understand.
One of the key factors in lending, and borrowing is interest rates, and as long as lending has existed, this is what defines a loans affordability. However, as history has shown, the interest rate is not reflective of the true cost of borrowing when considering the annual percentage rate (APR).
It is the most widely used metric for the determination of a loan being affordable. In the case of loans that are long-term, or more traditional, the APR is meaningful, but for short-term loans, it can be less relevant for the customer.
This is even more relevant when comparing alternative products to those that are more traditional. The reason for this is you have to consider the time invested in the application process, and that is even more so relevant for business owners as studies have shown most invest over 30 hours on any given loan application with a traditional lender.
That amount of time could increase with alternative lenders, and that is relevant to the cost applied versus hours invested, this also has to be factored into the equation and bottom line.
The government’s efforts to create cost-comparison transparency between alternative and traditional lenders were thrown into array with the inclusion of fintech lenders (online lenders). The result has seen an overload of outdated and incompatible information that has those operating in this realm at a disadvantage.
However, the release of SMART Box and similar technologies is helping to bridge that gap through the highlighting of measuring costs, and for those smaller based business working can result in immediate financial returns.
In these situations, loans that are 2-3 years in length will often see a lower APR, but often the case is you are paying more due to the money being kept for periods that are longer than actually needed. This often is the case with credit card lenders who finance those with spending habits that are not always healthy.
Often these relate to people who give in to impulse shopping or those that use lending methods to finance recreational spending with products such as vacations or sports betting as advertised on sites such as Nostrabet, a leading sportsbook information site. In those cases, borrowers are actually seeing higher lending costs than the money spent, and that can make it unaffordable id carrying over balances several months.
What really needs to be understood is whether the advancements in lending technology will carry the appropriate ethical responsibilities that should be associated with something that is new to the industry. That will only be effective if the end user, which is the customer can have confidence in its abilities to be an effective tool.
