Michigan graduates with bad credit may soon have new ways to borrow

Inside Subprime: June 26, 2018

By Ben Moore

New legislation in Michigan could be the solution to a problem a lot of recent college graduates have: the inability to secure loans or gain access to credit. 

Two out of three graduates leave school with an average of $31,000 in student loan debt, and many are finding it difficult to pay basic monthly expenses while at the same time paying off their mountain of student debt. And their credit scores are suffering as a result.

Most Michigan banks will not give short-term loans to borrowers with credit scores of less than 700, and in a state where the average Experian credit score is 688, many recent graduates are struggling to make ends meet.

Payday lenders in Michigan are one of the few places people with lower-than-average credit can go to get a short-term loan. But new legislation is hoping to fix that, and give would-be borrowers an option that doesn’t have the potential to trap them in a cycle of debt.

Politicians in the Michigan House of Representatives are currently working to push through legislation designed to foster relationships between community banks across the state and Fintech firms, who can provide affordable, short-term loans to borrowers in need. According to a recent survey from Career Builder, three-quarters of Americans currently living paycheck-to-paycheck, and these loans would help alleviate the financial pressures on this population, providing cash at relatively low APRs and helping financially unstable consumers steer clear of payday lenders with notoriously high interest rates.

These Fintech options would use a new approach to verify someone’s ability to repay debt, and would utilize emerging technology to analyze thousands of data points and access potential borrowers’ credit histories. A borrower could simply use their smartphones to gain access to thousands of potential lenders by app, and lenders would have the ability to adjust their interest rates and approve new loans quickly. The new Michigan legislation is set to partner such apps with small banks, expedite the loan approval process, and provide access to loans to consumers across the state, who might not live near a participating bank.

With the average Michigan resident carrying about $5,000 of credit card debt, this potential new option comes at a pivotal time for a state in which many are just one emergency away from financial ruin.

However, this is not a done deal. In order to put these options into law, lawmakers must address archaic banking regulations, and answer the concerns of the loan regulation community. While it appears that there is still a long way to go to in order to provide financially sound short-term loan options for Michigan residents, it will inevitably be up to lawmakers to continue to press the urgency of the matter and push new legislation through.

To learn more about payday loans in the U.S., check out these related pages and articles from OppLoans:

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