Financial technology or FinTech has been causing transformative disruption in the banking and finance sector around the world. FinTech has revolutionized payments, trading and investment, banking and nonbanking practices, research and development, big data and analytics, customer service and support. It has already revolutionized lending. A few types of lending are yet to be transformed by FinTech. It is about time that financial technology brings about the necessary disruption in online title loans.
The Limitations of Traditional and Online Title Loans
Some sectors of finance that have witnessed and been subjected to unprecedented revolution. The algorithms driving trade and foreign exchange, the big data powering investments and extensive analytics being used by financial advisors have been around for a while now. They have only gotten better.
A few sectors of finance have been relatively untouched and uninfluenced by FinTech. Take for instance, short-term secured financing such as title loans. These loans are still regulated using outdated systems. Banks have been the least responsive to FinTech, which is why we have had the emergence and subsequent popularity of the likes of PayPal. Digital wallets and online payment gateways have mushroomed in the last twenty years and they have consolidated their presence against traditional modes of transferring money or transactions.
The term “online title loans” is a misnomer. You can apply for these loans online but not really get one unless you have the vehicle physically inspected for its value to be ascertained. Even a curated list of the best online title loans by PlungedInDebt.com yields nothing. There is a need to physically hand over the title, get other proofs validated or vetted and only then, do lenders approve the loan application and subsequently disburse the loan amount.
Traditional title loans have only been transformed to an extent that you may apply for one online and then take it forward in a conventional way. FinTech can not only make online title loans real but it can actually revolutionize the industry, which shall work in favor of lenders and borrowers. It is often believed that only borrowers will benefit with FinTech being incorporated into the systems used by these lenders. This is not true. Lenders too will benefit and the industry can become much more rewarding, simplified and regulated.
How FinTech Can Transform the Industry
Let us consider something as simple as peer-to-peer lending or lending networks that use the power of the masses. A massive majority of title loan companies are private businesses. There may be one or more investor putting in the money. There are medium sized financial institutions that offer title loans. However, you will be hard-pressed to find a title lender in these networks.
There are such networks for other types of loans. People are already applying for personal loans, and raising funds for startups using peer-to-peer lending networks. The concept is not new and the platforms are not in a stage of experimentation. Such networks have been proven effective and useful for all.
The assessment of eligibility for title loans is quite simple. The proofs of identity, address and income are basic requirements. The ownership of the vehicle is proved through the title. The title must be free of lien and is used as the security. There is no other criterion here, as credit checks are not conducted for title loans. The entire premise is quite simple. The hurdle of physical inspection of vehicle and the need to hand over the title can be easily replaced by state of the art processes facilitated by FinTech. There is cognitive A.I., telematics, regulatory technology or RegTech, virtual or web based financial planning tools and algorithm driven financial learning that can empower both lenders and borrowers. It is possible to assess the value of a vehicle and ascertain the risks without really having to physically inspect a vehicle.
FinTech is not always disruptive. It can be facilitative and accommodative too. FinTech can be tweaked to coexist with prevailing systems. It does not have to replace all existing systems or processes. It can simply make the whole process of applying for and approving title loans a little more expedited and surefire.
Borrowers will find it easier to deal with an interactive virtual interface if they are far away from the offices or branches of title companies. Borrowers can have their profiles assessed by lenders for better risk mitigation. Lenders can have a much more holistic assessment of every applicant and accordingly determine if they should lend, if so then at what rate and terms.
The real question is if lenders are receptive to the idea. FinTech does not call for massive investments. Many innovative solutions available do not require recurring expense either. FinTech can empower lenders to operate beyond their present markets. Processes can be automated. Risks can be mitigated. The power of lending networks will financially empower lenders.
Borrowers will find it more difficult to avoid nonpayment since the updates will be reflected on reports across platforms and their creditworthiness shall take a hit. FinTech is the need of the hour if title loans have to remain agile and relevant in changing times.
The high rates of interest, the limited loan amounts and the unfavorable terms for borrowers have been discouraging many. FinTech can address these problems while ensuring the lenders do not find themselves on a slippery slope. The transformations that financial technology can bring about for online title loans will benefit lenders, borrowers and an ever-growing network of investors, who will find the FinTech backed systems more reliable.