Clark Howard: Start-ups now offer new loan options

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The power of data is setting a new breed of lenders free to make loans to millions of Americans who previously couldn’t borrow money.

Some 70 million Americans have “no file” or a “thin file” with the credit bureaus, which means traditional bank credit models aren’t able to determine whether or not they’ll be a safe credit risk when lending money. That effectively locks them out of traditional borrowing channels.

But the good news is that the alternatives are growing. Startups like and use different algorithms to determine your credit worthiness.

Both use a variety of things like looking at your social media contacts, how long you’ve had your current cellphone number, whether or not you use proper capitalization when filling out online forms, and any of a number of other oddball risk-analysis factors.

This niche in lending has come about because lenders can now use ultra-cheap computing capabilities to figure out in a whole new way what the likelihood is that you’ll default. Of course, none of this is proven science, so we’ll have to see how it plays out for the lenders.

The New York Times reports Earnest, which launched two years ago, is growing month-to-month at a whopping 70 percent. The loans they do are from a few thousand dollars up to $30,000. The people they lend to are mostly millennials who are comfortable doing business in a non-traditional way with a non-traditional company.
There’s even a controversial company in the payday loan arena called that is doing payday loans at a lower interest rate using these algorithms.

Their rates are still outrageous, but they’re a fraction of payday loan rates.

Clark Howard — Save More, Spend Less, Avoid Rip-offs — for the Atlanta Bargain Hunter blog

Consumer expert Clark Howard’s column appears here each Thursday in conjunction with Deal Spotter, a weekly print section in The Atlanta Journal-Constitution. Find more answers to your consumer questions at Clark’s website

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