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Alternative loan use potentially indicative of financial savvy, study says

Misconceptions regarding products or services new to the market can develop in any industry. This is especially true in fields where the entrenchment of ideas is relatively common, and although the banking and financial services sector has seen plenty of recent advancement in terms of technology, the same can't always be said of the ideas held by veterans of the industry.

"Data shows consumers with multiple alternative loans may be less likely to fall behind on payments."

To a certain extent, this is what happened with alternative credit data when it first became a factor: Bankers and other traditional lenders were initially skeptical, due to a belief that nontraditional lenders would accept any applicants, even those with markedly poor financial histories. Some may still believe those holding such loans are likely to default. Recent data, however, indicates that things might not be quite so cut and dried. 

Financial responsibility among alternative loan users
TransUnion conducted a large-scale study on this matter, surveying 450,000 individuals who used alternative credit and approximately 4.5 million who did not.

Ultimately, it found that among those with one short-term or otherwise alternative loan, only 14 percent went 90 days or more past due on a traditional loan later on. This number declined to 12 percent or less for those with two alternative loans, and only 9 percent of those who'd held eight or more such credit products over the course of seven years were found to become seriously delinquent.

Ultimately, the numbers present that an individual with more experience handling loans make them less likely to go into debt over them. While such a conclusion might seem obvious - a "practice makes perfect" sort of thing - the fact that it involves nontraditional loans indicates that at some point, these folks weren't traditionally credit-worthy in the eyes of some, but developed good fiscal habits over time. 

The multifaceted calculation of risk
It should be noted that the research did find a higher overall risk level on traditional loans among borrowers of alternative credit products. However, given the numbers above, it's clear that the difference isn't as material as some might have previously believed. Additionally, when it came to certain traditional loan products, like credit cards and auto loans, those with a history of alternative loan use presented a "reasonable risk" rather than anything considered dangerous.

Businesses that want to broaden their customer base by taking a chance on alternative credit users can contact PRBC Mainstreet today to learn how the platform benefits small-business owners. 

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