Employees need access to affordable credit now more than ever
A few weeks ago, anyone with a credit score above 600 could get approved for a personal loan or credit card, at a fairly reasonable interest rate, in a timely fashion.
They would likely have a different experience today.
Credit scores help financial institutions determine the risk associated with loaning money to a particular person. By using credit scores, financial institutions instantly know the trustworthiness of the borrower, and the corresponding interest rate to charge them.
The coronavirus pandemic has made credit scores much less reliable in determining the trustworthiness of borrowers and their associated risk. Virtually overnight, financial institutions must completely reassess the perceived risk of lending to consumers. It’s uncharted territory.
As a result, financial institutions are taking extreme precautions when lending and bracing for record defaults. First-quarter earnings reports provide a glimpse into the future. JPMorgan, America's largest bank, added $8.3 billion to its reserves to cover predicted losses, and Wells Fargo added $4 billion to its own. They're preparing for the worst.
So, what does this mean for American workers?
Financial institutions will require more documentation to approve loans, and credit score requirements will inch higher. Expect higher interest rates and lower amounts approved. Recently, LendingClub, one of the largest providers of online consumer loans, announced it will increase interest rates for all new borrowers and will completely stop issuing loans to non-prime applicants.
Americans are in a tough spot. They'll likely have a harder time getting the extra cash they need. And right now, access to affordable credit is crucial for many, as 1 in 5 American households has lost income due to the pandemic, and unemployment offices are overwhelmed with claims. It may take weeks before applications are processed, and cash is distributed.
Your employees need your help to access affordable credit now.
Not everyone has paused lending, and there are a few ways you can help your employees get access to affordable funds in this difficult lending market.
One quick option is to pursue a partnership with a financial wellness provider that can offer your employees favorable lending terms. At HoneyBee, we offer all employees equal access to funds regardless of their credit score, at no interest, paired with on-demand financial coaching. No employee is left behind, and the funds are provided entirely outside of payroll.
Another option is to consider partnering with a local credit union to facilitate loans. They may be able to offer your employees access to affordable loans since they are non-profit, member-owned organizations.
As employers, it's necessary to be proactive in considering the needs of your workforce. That includes shifting to focus on being more positive while also providing your employees with the tools they need to be resilient. You are the life-line your employees need to get access to affordable credit. Open that door for them because they are counting on you to help them navigate this difficult time.