There is so much going on when it comes to the American financial industry. One consistent truth over the past few years is that those who assume nothing are usually better braced to take those unpredictable hits. Still, and even when our economy was at its worst, there were ribbons of new trends that emerged.
Peer to Peer Lending
We’ve heard a lot about this financial service. Initially, it was mired in controversy as it was a new option unlike anything else. For awhile, the government was peeved because it felt as though it needed a bigger piece of the pie. The way it works is simple – those in need of funding for a new car or an addition to their homes or even a vacation can sign up on one of the sites, tell their story and hope investors will toss in a few dollars to help them meet their needs. Once the loan has been funded, you make your payments and go on about your business. In many instances, those who were initially borrowers became lenders. It’s a win-win, after all – those willing to take a risk earned a nice return on their investments and those who took a beating during the recession were given access to funds that their bank was no longer willing to offer.
Now, many consumers are turning to peer to peer lending to pay off credit card debt. Again, it comes down to being a winning solution for all parties. Those wishing to pay off their credit cards can save money with a better interest rate and those willing to take that risk earn money from their willingness to take a chance. Credit card debt and debt consolidation are the two top reasons behind the requests from would-be borrowers. In fact, 70% of borrowers are using funds for those purposes.
And if you’re wondering how big this new sector is, consider this: the two biggest services, Lending Club and Prosper, saw more than $1 billion made in loans as of May 2012. Also, a credit report is pulled, but it’s not the deciding factor in whether a borrower gets his requests filled. After all, it was the tighter credit market that resulted in these types of services. Not all borrowers have good credit, but they all have needs their banks or credit card companies can’t meet.
The Doctor is Not In
You may not make the connection between a financial trend and your doctor immediately, but just scratch the surface and it becomes obvious. There are so many factors behind this trend and all are worrisome. First up, doctors are retiring far sooner than they anticipated. They’re making these choices because they’re concerned about ObamaCare. This means our health care system could be on target for massive problems.
Physicians, 57% of them, say while they’re concerned about possible medical professional shortages, the fact is, they can’t afford to take the kind of risks many suspect will be required. This means all of us might find ourselves in need of medical care and not be able to access it, either because a doctor isn’t available or we can’t afford it. Remember – it’s our tax dollars that fund the health care plan slated to go into effect in less than a year.
And make no mistake – it all comes back to the same thing: the economy. Jane Orient, executive director of the American Association of Physicians and Surgeons points out that the regulations are overwhelming and in small practices, it may be that these doctors feel as though adding staff members just to ensure they’re in compliance makes no financial sense. The “crushing” regulations will mean some simply retire – even if it means a change in their lifestyles. Also, too, there are mandates that require electronic medical records to reduce paperwork and other reasons that are puzzling to some.
New Credit Score Models
It was announced earlier this month that a new credit scoring model would be made available to lenders in hopes that the new methods would allow more consumers to qualify for loans. The hope is that more will be able to buy homes, cars and qualify for credit cards – all of which are needed for any true growth in the economy. But it has the promise of doing much more, too.
The updated models could lessen the repercussions for consumers whose credit takes a hit due to major illnesses and even natural disasters. Lenders would be offered timetables that would help define a drop in payment activity. For instance, during last year’s Sandy landfall on the east coast could mean those affected have a tag that tells lenders this borrower’s life was affected by the storm. Lenders could make concessions at that point.
But what has many hopeful is the fact that it can mean opportunities for those with little or damaged credit. It takes into consideration non traditional relationships, such as those between landlords and renters, utilities and other accounts. This could easily equate to 30 million people who now have the chance to qualify for loans. The key is to get lenders to use these models and that could be iffy, at least early on. Remember, Vantage Score isn’t new, it’s been around for around 7 years, but with the changes, the hope is that more lenders will indeed begin incorporating it into their decision making processes. FICO is still the go-to scoring model – but already those familiar with the various models say VantageScore is gaining ground. Already it’s being used by seven of the top 10 financial institutions, six of the top 10 credit card issuers and four of the leading auto lenders and mortgage lenders. This, according to the VantageScore website, could mean big changes in how much we pay in credit card interest and whether we’re approved for that new car loan.
Have you noticed any of these trends affect you or your family? Have you tried peer to peer lending? Maybe you’re worried about the health care sector? Let us know your thoughts.
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