Companies like Maxlend Loans stepped in to fill the gap for the large number of consumers who were unable to borrow money from banks and credit unions. These applicants typically had not yet established credit or had experienced problems with credit in the past, resulting in a low credit score. Without a credit card or approval for a personal loan, they had no way to borrow money for emergency needs.
Direct Mail Campaigns
A few traditional institutions have begun offering installment loans through direct mail campaigns. Their mailing lists include people who are in the mid-range for credit ratings; perhaps their scores are at the higher end of the “fair” category. This still does not help the many people who apply for loans with online installment loan companies every day and are relieved to have their request approved.
Income Considerations and Co-Signers
In addition, some lending companies offer better interest rates but require a higher income than is true of the online installment opportunities. Some banks and other types of lending companies will provide a personal loan if the applicant has a co-signer who would qualify, but not everyone has a relative or close friend who will take on this potential responsibility.
The Payday Loan
For years, the only option consumers in these situations had was the payday loan that is required to be paid back in full within two weeks. With the advent of online installment loans, they now had the option to take out a somewhat larger amount of money and pay it back over several months.
An Ongoing Debate
Financial experts debate about these issues, but their debates so far not help the low-income U.S. residents who need to borrow money. Some believe banks and credit unions should become more lenient and offer short-term loans to members who are not qualified for the standard personal loans. These lending products could have somewhat higher interest, but not as high as online lending companies charge. Traditional financial institutions so far generally are not willing because they know the risk of default is significant. In fact, that is exactly the reason why online lending companies charge the higher rates.