Social loans enable affordable credit
How do social loans help people get a better deal? By giving them a chance to build on what they have.
As a recent college grad myself, I know that just because I have a credit score doesn’t mean it’s a good one. In fact, many of my peers and I are learning that having a good credit score translates into direct savings in our pockets as we start thinking about financing larger purchases and investments. It turns out that the majority of MAF’s clients who take out one of our social loans actually start with much lower (or nonexistent) credit scores than the nation as a whole, meaning that if they have access to loan products their paying a lot for them. That’s because, for people with low credit scores or very limited credit histories, even a small positive change can have a large impact on the interest rates for important lines of credit such as car loans, mortgages, and even credit cards.
A credit score doesn’t just determine if you get approved for a credit card, but also how much interest you pay.
Most of our clients start with credit scores below the national distribution. As we can see in the chart below, the median credit score of one of our members is around 650, while the national median is somewhere closer to 720. That translates into much higher borrowing costs for our participants.
Our programs include both access to social loans as well as financial management training, which helps enable people to take the first step in towards gaining access to more affordable credit. Often lack of or low credit gets talked about in terms of lack of access. It’s true that if you don’t either don’t have a score or have a very low score you won’t have access to the same type of financial products as those with established histories. But even if those with nonexistent or poor credit who do have access to these products will pay substantially more for them. I’ve laid out how much you’d be expected to pay for various loan products depending on your credit score in the infographic below:
By making positive payments on their social loans, participants are improving their credit one step at a time. A higher credit score means lower borrowing costs for debt. If hard-working people with limited or damaged credit want a chance at avoiding sub-prime rates, then using low-cost financial products like a social loan, paying back loans on time, and saving are all great places to start.
