If you’re short on cash and can’t qualify for a low rate credit card or personal loan, a high interest payday loan may seem like your only option. Don’t give up just yet: A growing number of startups are introducing innovative tools for consumers in a cash crunch and, in some cases, offering loans at significantly lower rates.
Lending startup Vouch offers rates starting at 5 percent and maxing out at 30 percent to consumers who can’t qualify for a lower rate from a traditional lender. To earn a lower rate, borrowers have to prove they have a trustworthy network of supporters willing to partially back their loan if they fail to pay it back.
Meanwhile, Ascend Consumer Finance offers flexible interest rates that decline when borrowers’ financial situations improve, so they aren’t stuck with the same high rate throughout the life of the loan.
Other financial startups, such as Even, are also offering tools to help people smooth out monthly fluctuations in their income and save more cash over the long run.
Last week, the Center for Financial Services Innovation honored nine of these financial startups and awarded them $250,000 each. According to a June 11 press release, the Center’s Financial Solutions Lab challenged the financial services providers to show how they’re helping families on a tight budget better manage their cash. “Winners are building solutions to help people save, manage their finances, access short-term credit and reduce debt — addressing a financial challenge faced by more than one-third of Americans: cash flow management,” said the Center in the press release.
Three financial services startups to watch
Among the winners honored last week at an industry conference in Austin, Texas some of the most interesting include:
- Ascend Consumer Finance: The loans offered by Ascend are pricey at first, with rates starting at 27 percent and maxing out at 36 percent. But borrowers with damaged credit can cut their interest rate by up to half simply by paying their bills on time, using their credit cards less often and saving more money in their accounts. The lender monitors borrowers’ bank accounts and credit reports monthly and rewards them with an interest rate discount each time they take an action that improves their financial health.
- Puddle: Unlike traditional lenders, financial services provider Puddle doesn’t care about your credit score, nor does it require you to fill out a loan application. Instead, all you have to do to borrow small sums of money is contribute at least $10 to a pool of money created by you and other users. The service allows you to borrow up to five times the amount you contributed. So the more money you give, the more you can borrow from the pool.
- Even: For an annual fee of $156 (or $3 a week), the financial services provider Even will help you manage monthly fluctuations in your income by saving any extra income you make in a separate account so that you aren’t tempted to overspend. The service will also spot you an interest-free advance if you make less money than usual one month and your savings comes up short.
Look before you leap
Many of the newest financial services providers offer significantly better terms than those offered by payday lenders and other subprime lenders. But they’re still not cheap, so make sure you fully understand the terms before you sign up.
To learn more about the six other startups honored by the Center for Financial Services Innovation, check out the Center’s Financial Solutions Lab, which briefly profiled this year’s winners.