The conventional perspective says credit scores are crucial to determine financial opportunity. This can be misleading, as many people might find themselves on the other side. They might not have borrowed money before and have no credit history to reveal.
Getting approval for loans with zero credit history is impossible when it comes to traditional lending. However, with the advent of Artificial Intelligence, things are changing in the lending realm. New doors are opening for someone who has no credit history.
AI is letting lenders analyse a bulk of data in minutes. This proves to be phenomenal when someone tries to apply for loans without a credit record. One of the main aspects, i.e., affordability, has received the required attention because of this new revolution in the lending industry.
If you have to borrow money for a car purchase or car repair, you have alternate loan providers to consider. Apply online and get car finance from a direct lender in a hassle-free way. This has become a ton of data that can now be processed within milliseconds because of the inclusion of AI features.
The change has not happened overnight. There are levels of advancement that have been introduced. This blog will discuss the impact of AI on loan approvals for people with no credit history.
Influence of AI in loan approvals for people with no credit
The lending process has been reshaped because of AI influence. This has improved the chance of getting loan assistance even when you have no significant credit history to showcase.
There are situations when you may not have a credit history to establish.
- Young people studying or who have just gotten a job might never have borrowed money
- Individuals who are yet to handle financial responsibilities
- Small businesses are still working on a low scale and might be operating outside the traditional banking system
- Some people might not have formally tracked financial activity.
They are often denoted as “credit invisible”. As they do not have a credit history to display, they need to win the confidence of the lender. Things have changed these days because of AI, and a lot has been shuffled in the lending industry as well.
Alternative ways to utilise data
The traditional lending system focuses on the credit scores of the borrower to assess risk. Now, for someone who does not have a track record with credit scores, getting loans will be out of the question.
This is where AI has introduced a major change. It is through using alternative data sources, like payment histories. These can be established by showing a utility bill, rent, mobile phone payment history, employment stability, etc.
Here, the main focus is to figure out if the loan applicant is consistent in making these payments. At the same time, the loan provider would like to make sure that the borrower has a stable employment history.
Data related to digital transactions they might have completed can help the lender understand the borrower’s financial engagement. AI collects all this data about the borrower to conduct a comprehensive risk assessment. No credit history is required in this process.
Speed of processing has improved
The conventional lending depends a lot on the manual process. This includes steps that take a lot of time to complete. This loophole has been fixed with the help of AI.
Now, the borrowers do not have to wait longer to receive a response from the lender. Some steps are automated so that an immediate decision can be made. AI is capable of processing data fast, and this helps in making a fast decision.
The borrower does not have to wait for days to know whether their application has been accepted or rejected. As real-time data has been fetched by AI, faster decisions have been made possible.
AI can identify patterns in the financial behaviour of the borrower that a normal human being might have overlooked. Its algorithm is so designed that data gets processed fast. For this reason, evaluating the financial habits of the loan applicants and other related features does not take a lot of time.
Reduced errors in the processing
When it comes to humans, they are capable of processing limited data. This is not going to happen with AI, as it can analyse huge data sets in a fraction of a second.
They can filter data accurately because of their well-structured algorithm. It can calculate faster and helps lenders make informed decisions. The loan provider can now have real-time data to focus on over credit histories that can give them a glimpse of borrowers’ past financial activities.
Customisation in offers has become possible
The lender can now personalise a loan deal according to the financial profile of the borrower. AI has contributed largely to this. Creating the right combination of loan amount, rates, and terms is difficult with a manual process.
With the help of AI, offers can now be customised according to the borrower’s preference. A few things are enquired in the online form. Based on what has been shared by the borrower, pre-approved offers will be curated.
They are not standard offers created once and meant for every borrower who is applying with the lender. Every time a new application is submitted, pre-approved offers will be generated. These offers usually vary depending on the amount that the borrower has chosen.
Loans made accessible to a wide variety of people
Different assessment factors are now considered while validating the loan application. Because of this change in perspective, now different types of borrowers can apply for loans. Credit history was a reason for hesitation for different types of people.
Anyone who has no or bad credit history might consider them unfit for loans. This perspective has changed since AI allows lenders pay attention to aspects that can actually tell if loan payments can be made on time or not.
Credit records show how the borrower handled the previous payments. These cannot guarantee whether the same pattern will be repeated or not. On the flip side, by assessing the current financial condition of the borrower, the lender can assess if there is scope for timely payment of loans.
You might have started working on your credit scores. The outcome will show up after some time. However, it does not mean that you do not earn or are not capable of affording loan payments.
You have increased your earnings and can keep aside money for repayments. All these things are not going to be revealed by the credit scores. It focuses only on the past and overlooks the future progressions.
AI helps the lender go through the aspects that can display the real picture and not a reflection of the past.
The bottom line
Because of AI intervention, getting a decision regarding 10-minute loans with no credit check upfront will be possible. However, it does not mean that no assessment will be conducted. All the necessary checks will be performed, while a soft check will be mandatory at the initial stage.
Since this assessment has nothing to do with your credit history, you can get a breakthrough even without significant credit records. Later, when your application gets processed, hard checks will be conducted.
AI has made it possible for lenders to look through areas that have not been covered by traditional lending. Besides, automation can be introduced at various points. This has helped in saving a lot of time and processing loan applications at a faster rate.
