5 Unexpected Challenges That I Could Face While Choosing FinTech

There is no doubt that borrowing experience has improved since FinTech introduced it. There was a time when people had to wait for a long time to have money in their account during financial emergencies, but now they can get cash in a spit of a second. You don't need to go anywhere to apply for a loan. As long as you have accessibility to the internet, you can borrow money when you need it.

Though online lending has improved borrowing experience, it has some drawbacks too. As you do not have to meet with your lender in person, it isn't easy to solve your queries at a time. Although some direct lenders provide round the clock services, it is not possible to answer all of your questions through chatbots.

With online lending, you do not need to waste your time in queues and to file out lengthy application forms, but you should bear some risks in mind. There are some terms and conditions you need to know before signing the contract. Most of the borrowers end up paying hidden fees and upfront fees.

The repaying policy varies from lender to lender, and hence borrowers must be well aware of everything beforehand. FinTech has improved borrowing experience, but there are few challenges faced by Fintech which we are going to analyze in this article.

What business challenges does Fintech face in offering the new service? Here are some of the challenges that you could face while choosing FinTech.

1. Reliability

Reliability is one of the most significant concerns among borrowers. Several direct lenders are claiming that they lend money at affordable interest rates, but you cannot have a word to your lender while processing the loan application form. Several direct lenders follow unethical behavior to make profits by charging high-interest rates. They pretend to behave as per the guidelines of FCA, but they charge very high-interest rates.

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Good credit borrowers approach to banks to take out a loan. Such financial institutions do not entertain applications from bad credit lending, and therefore people apply loans for bad credit from direct lenders even these lenders charge high-interest rates. If you fail to make payments, you will end up rolling over the loan. It will continue to add up the interest penalties and late payment fees, and eventually, you will fall in a debt cycle.

When you apply for a loan with a direct lender, you must know that lender is registered with FCA and using ethical policies to lend you money. A good rule of thumb says that you should compare the interest rates of each lender before signing the contract.

2. Justified Policies

When you apply for a loan with a bank, they run a hard credit check. It means they will look over your credit report to see if you have committed a default in previous payments. If your credit history is less-than-perfect, they will turn down your application. However, direct lenders do not have any problem with accepting applications from bad credit borrowers.

Direct lenders do not run a hard credit check because it pulls points from your credit score, making them worse. One of the best advantages of online lending is direct lenders do not turn down your application form even if your credit rating is poor. They run a soft credit check to find out if you can repay the loan so that you do not need to lose more points. However, it calls into question the justified policies of the lender.

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How does a lender can rely upon soft credit inquiries to assure the repaying capacity of the borrower? A soft credit check is mainly a background check that does not leave any footprints on your credit report, and hence there is no risk of losing your credit score points. However, these inquiries generally help you get details about your address, date of birth, and the like.

It can improve the lender interpret that you have a valid address, and you are not a fraudulent borrower, but this is not enough to be sure about if you can repay the loan. You should apply for a loan with a direct lender that evaluates your income statement to determine your affordability.

3. Lenders’ Historical Performance

Knowing the historical performance of the lender is another significant challenge. It is hard to tell how borrowers are satisfied with the lending process of the lender. Though reviews and testimonials are considered a great way to know about a financial company, they may be fake. There is no reliable way to tell if the policy of the company is in favor of borrowers.

4. Doubts Related To Hidden Fees

Another challenge you will experience while using FinTech is you do not have a way to know if they charge any hidden fees. Many lenders charge processing fees when you apply for loans, but it is hard to understand if there are any hidden fees. However, some reputable lenders are out there that do not charge fees when you take out short term and long-term loans for bad credit in the UK.

APRs include interest as well as processing fees and other additional charges. Because of fees, APR is always higher because it includes fees along with the interest rate. The loan agreement does not explicitly mention additional charges. Not knowing the hidden costs and how much it makes the loan expensive is the biggest challenge for borrowers in the FinTech world.

5. FCA Guidelines

Not all direct lenders follow FCA guidelines. It is why there is always a risk of being trapped in a debt spiral. When you take out a loan, make sure that you turn to a lender that follows FCA guidelines.

Conclusion

Though FinTech has improved the borrowing experience, but there are still several challenges faced by Fintech. The FinTech industry is making all possible efforts to overcome these challenges. However, it will take a bit long time. It is recommended that you should prefer borrowing money from a direct lender that has a reputation.