June 8th, 2012
Review: NetCredit Aims its Loans at Poor Credit Consumers
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NetCredit, a new online personal loan lender, is providing loans to consumers with poor credit in hopes of filling the gap between payday loan users and consumers who qualify for traditional loans. The company, located in Chicago, isn’t new to lending. It’s an extension of Enova Financial, which has been involved in the industry since 2004.
Although their loans aren’t for everyday use, they could be an alternative for those consumers with less-than-perfect credit who need a loan in a hurry.
How it works
Right now, NetCredit loans are only available for Virginia residents, although the company expects to offer its products to more consumers in the near future.
First, you fill out an online application. NetCredit will review your credit score as well as other financial factors to determine if you’re approved. Then, you’ll see the maximum loan amount available to you. For now, loans range from $500 to $3,000.
Once everything is approved, your loan amount will be deposited into your bank account, usually by the next day. Of course, the speed of the deposit can also depend on your bank.
When it comes time to repay your NetCredit loan, you can do so by setting up an electronic funds transfer from your bank account or remotely created checks. As far as fees go, you’ll pay the daily simple interest accrued on the remaining unpaid principal.
How it could change the industry
NetCredit is trying to insert itself into a traditionally unsupported market segment—poor credit consumers who can’t get traditional loans but don’t want the troubles consistently associated with payday loans.
Another differentiating factor of NetCredit is its ability to conduct all business online and over the phone. Similar lenders, like Springleaf and OneMain Financial, require you to go to a local branch at some point during the lending process.
What borrowers should look out for
As mentioned above, these loans aren’t for everyday use. Consumers shouldn’t use this kind of loan the same way payday loans are traditionally used, and that’s exactly what could happen. The cyclical danger of payday loans affects 40 percent of payday borrowers—they roll over their loans five or more times in a year. With payday loan interest rates going as high as 900%, it can get unmanageably expensive. By comparison, NetCredit’s APRs only reach 300%, but that can still be quite costly to a defaulted borrower.
For instance, in the state of Virginia, a consumer with average credit who qualifies for a 6-month loan of $900 will have an APR of 242.3%. If he defaults and doesn’t pay back his loan at all during the 6-month minimum loan term, he’ll eventually end up paying $912.88 in interest.
Bottom Line: NetCredit hopes to fill the lending market gap between those with very poor credit and consumers who can qualify for traditional loans, but only time will tell if it’s a market that needs filling at all.
**Correction (6/12/2012): This article previously stated, “In the state of Virginia, a consumer with average credit who qualifies for a 6-month loan of $900 will have an APR of 242.3%. If he defaults and doesn’t pay back his loan at all during the 6-month minimum loan term, he’ll eventually end up paying more than $1,090 in interest.” This has been corrected and updated to reflect the fact that NetCredit does not charge interest on overdue balances, which means the customer will never pay more interest than that stated in their contract. In the example above, the resulting interest payment would be $912.88**