The emergence of online lending has been a welcome development for consumers. Innovation in lending and more companies competing for your business means many borrowers are more likely to qualify for a loan, on better rates and terms, than in the not-so-distant past.
But the rapid growth in online lending — driven in part by new business models like peer-to-peer and marketplace lending — means there are lots of new and unfamiliar names in what used to be a conservative business dominated by tightly-regulated banks.
You may have read recent news reports that the Consumer Financial Protection Bureau is increasing its scrutiny of online lending. What prompted these reports is that the bureau recently encouraged consumers to notify it whenever they encounter a problem with an online lender.
As the bureau noted in its announcement, the CFPB has been accepting complaints about all types of lending since 2011. Consumers will continue to use existing categories to file complaints about online lenders offering personal loans, auto loans, student loans, mortgages, credit cards, and payday loans.
You can read complaints that the bureau’s received about any lender in the CFPB’s complaint database. The process is similar to the Better Business Bureau’s. Each week, the CFPB sends thousands of complaints to lenders, who are expected to address them within 60 days.
The sheer volume of complaints in the CFPB database might seem daunting. But in the vast majority of cases, lenders provide a timely response that resolves the complaint. The CFPB reports that 97 percent of the complaints it sends to lenders and loan servicers get a timely response, and that companies have responded to more than 530,000 complaints to date.
Marketplace lenders are making waves by bringing innovation to the staid business of underwriting, originating and funding loans.
But it’s important to note that marketplace lenders are required to follow federal and state consumer financial protection laws. At the federal level, these include the Truth in Lending Act and the Equal Credit Opportunity Act, which are aimed at prohibiting unfair, deceptive and discriminatory lending practices.
Lenders who partner with Credible to make offers through our platform are required to demonstrate that they comply with these laws.
How we vet lenders
In addition to verifying their compliance with consumer financial protection laws, Credible also subjects lenders to a thorough vetting process that’s aimed at making sure we partner only with companies offering high-quality loan products and customer service.
Our vetting process examines lender performance in 33 areas within four major categories — legal compliance and financial stability, breadth of product coverage, product attributes, and customer experience.
When we look at legal compliance and financial stability, for example, we want to be sure lenders are disclosing to you all of the information you should have about their offerings, and obtaining your consent before they pull your credit.
In evaluating breadth of product coverage, we consider the inclusiveness of a lender’s credit criteria, breadth of income eligibility, and geographic coverage. For student lenders, we consider whether lenders will refinance private and federal student loans, debt held by holders of graduate and undergraduate degrees, and the list of schools that they’ll serve.
Important product attributes include whether lenders offer fixed- and variable-rate loans, terms of varying lengths, and access to forbearance and other relief programs. We prefer student loan providers who provide autopay and loyalty discounts, and that don’t charge origination fees or prepayment penalties.
In the customer experience department, we want lenders to be able to integrate with the Credible platform and have a clear, easy to complete closing process that allows users to upload documents and e-sign promissory notes. We want to see that lenders have a process in place to handoff collection of loan payments to an approved loan servicer, and we review servicers’ performance including their history with the CFPB.
Consider your own circumstances
Ever since the mortgage meltdown — when millions of Americans who borrowed too much money against their homes ended up losing them in foreclosure — many consumers have adopted a healthier outlook on borrowing.
Just because somebody will lend you money doesn’t mean it’s in your best interest to take them up on the offer. The same can be said of student loans, personal loans, credit cards and payday lenders.
In its March, 2016 consumer bulletin, “Understanding online marketplace lending,” the CFPB emphasizes the importance of shopping around to find the best deal.
One of the advantages of shopping for a loan on Credible.com is that we’re a multi-lender marketplace. You can compare the actual loans, rates, and terms that you qualify for from multiple lenders, without sharing any of your contact information with lenders.
In its marketplace lending bulletin, the CFPB offers the following advice to consumers that applies to any type of loan:
- Create a budget showing how much income you have coming in each month, and what spending and other payments you make.
- Decide how much, based on your monthly budget, you can afford and really need to borrow.
- Look beyond the monthly payment and consider the total cost of the loan, including interest and fees.
- Only borrow what you need and can afford to repay, even if a lender offers you a bigger loan.
If you’re refinancing federal student loans, consider whether you’re switching from a fixed to a variable rate loan, and be aware that you may lose borrower benefits like loan forgiveness and access to income-driven repayment programs (see our guides on refinancing student loans and the Revised Pay As You Earn plan, or REPAYE, for details).
Another good piece of advice from the CFPB is to check your credit report before applying for a new loan or to refinance existing debt. Mistakes can dent your credit score, which could lead you to pay higher interest rates or disqualify you from being approved for a loan.
Your credit score isn’t the only factor you need to consider. But anything you can do to improve your credit score will boost your chances of being approved for a loan, and save you money if you’re able to obtain a lower interest rate.
When you’re ready, Credible lets you compare actual loans, rates, and terms that you qualify for from multiple lenders, without sharing any of your contact information with lenders. You can find out which student loans, student loan refinancing loans, and personal loans you qualify for in about two minutes.