Fintech is a fusion between finance and technology. The term is used to describe the expansion of financial services to include technological solutions for banking, lending, investing, and other related activities.
Let’s have a look at how Fintech will be shaping the lending industry in 2022 and beyond.
So what exactly is lending?
Lending is the act of borrowing money, goods or services from someone else.
Lending can be done in two ways:
1) Lending money to somebody else.
2) Lending goods or services to somebody.
Lending is often done by individuals or businesses when they need something for a short period of time, although it can also be done in return for interest payments collected in one form or another.
At the moment, we heavily rely on banks to provide us with our lending needs. The other option which seems to be the most popular is to borrow cash through payday loans. Majority of people who apply for a loan (Over 50%), usually go for these one time quick loans.
Today there are various types of loans and the Fintech space is hell bent on changing the entire space.
Secured Loans
Secured loans are one of the most common types of loans that people apply for. The borrower pledges collateral to mortgage the loan, which is usually a house or car to act as security against defaulting on the loan.
This type of loan is an excellent way for people to get access to funds they need, without having to put down a large sum of money up front. Especially if you are already earning cash from some other source.
However, secured loans can be expensive if you don’t know what you’re doing – make sure you know what you’re getting into before signing on the dotted line.
Many companies in the Fintech market are now working on mobile applications that will make getting this type of loan more secure and much faster. Reducing the amount of paperwork involved in the process as well.
Unsecured Loans
In the past few decades, there has been an increased demand for credit in the United States and Canada. One of the primary reasons for this is that more people are going to college and graduating with a degree, which is driving up household debt. Additionally, there has been a shift in the workforce from blue-collar jobs to white-collar jobs.
The average North American household will have a combination of debt from credit cards, student loans, mortgages and car loans. The average American household owes $136k.
Income inequality is another factor that can lead to people taking out unsecured loans because poor households have less access to traditional types of credit such as auto loans and mortgages.
With Fintech services like KOHO and Credit Karma, more of your ‘average’ Joe’s are becoming financially literate. Which is allowing them to save fees where they couldn’t when dealing with banks and more. This is reducing the number of loan applications and optimizing the steps where not.
Some of the most common types of unsecured loans are still being looked at by the Fintech maestros and in some cases, are being completely revamped.
Personal loans
Personal loans are a form of unsecured loan that is offered to you by a financial institution in order to meet your personal needs.
The amount that you can get on a personal loan varies depending on the institution but it is usually between $2,000 and $35,000. The interest rates charged on these loans are also variable and depend on the individual’s credit history.
Home Equity Loans
A home equity loan is a second mortgage that is used to pay for education, medical expenses, or other personal expenses. It is possible to get a home equity loan even if you are unable to make payments on your mortgage. If you are not able to make the payments on your first mortgage, this type of loan can provide you with some additional time to get back on your feet financially.
Lines of Credit
A line of credit, also known as a credit facility or overdraft protection, is an agreement to lend money if needed. It is often offered by banks or other financial institutions to their customers.
This line of credit will typically be cheaper than a loan, which has an interest rate attached to it.
Lines of credit are best for people who don’t want debt hanging over their heads if they don’t need the money right now, or for large purchases that may not happen right away (like home renovations). Lines of credit are available in both secured and unsecured forms.
Looking Towards The Future
Currently, the lending industry is going through an overhaul period. With Fintech companies taking charge, some banks are still a bit held back and conservative in their approach.
Most of them don’t want to innovate due to fear of losing marketshare.
Let’s see how things pan out but as history has shown us, you can only delay the future, not stop it.
Disclaimer: This content does not necessarily represent the views of IWB.