A new partnership between Experian and affordability software and payment provider Paylink aims to help consumers settle their existing credit commitments with lenders and thereby improve their access to credit.
By using Paylink’s ‘ReFi’ product on the Experian Marketplace, the partnership will address the affordability “restrictions” associated with debt consolidation loans.
Debt consolidation is the top reason given by consumers searching for loans on the Experian Marketplace.
However, Experian’s own data showed that only 37% of debt consolidation loan applications are pre-approved on its marketplace versus 59% pre-approval for credit card applications and said this creates a “vacuum” that can often lead to illegal lending practices.
More than three million people in the UK have used an unlicensed lender or loan shark, while in excess of 10 million have borrowed from friends and family, according to Experian.
The explanation offered by Experian is that lenders are unable to directly pay off customers’ debts when they take out a debt consolidation loan, and must rely on customers using the loan funds appropriately.
In turn, this “complicates” the underwriting process because lenders have to “double count” both the new loan and existing debts, often resulting in the new loan being deemed ‘unaffordable’.
In instances where the loan is granted, there is a risk it will not be used to repay existing arrears and that consumers end up accumulating more debt.
ReFi by Paylink allows customers to repay legacy debts, such as credit cards, personal loans, retail credit, and overdrafts, by consolidating them into a new loan with more favourable terms.
“Against the backdrop of a prolonged cost-of-living crisis, ReFi has already proved its value to thousands of customers who, by shifting legacy debts to a new more affordable loan, have transformed their monthly household budgets,” said Paylink’s chief executive officer Jake Ranson.
“ReFi enables a financial ‘reset,’ potentially leading to significant savings and quicker debt repayment. It also provides lenders with assurance that the new loan is affordable and will be used to clear previous debts, helping customers achieve their financial goals.”
Ranson added: “With unparalleled access to data, analytics and market insight, Experian is singularly placed to help ReFi reach thousands more people seeking to realise the opportunities access to reasonably-priced credit brings.”
Eduardo Castro, managing director of Experian Consumer Services, said: “As people continue trying to get on top of their finances amid the increased cost of living, our aim is to remove any barriers that will prevent them from doing so.
“Our new partnership with Paylink will allow us to unlock access to credit for more consumers seeking to simplify the process of managing their debt.”
In the US earlier this year, Experian launched a solution that uses Open Banking insights to expand access to credit, in particular for “thin file” and “credit invisible” consumers.
The new tool, ‘Cashflow Attributes’ is based on more than 900 income, cashflow and affordability attributes, and is available to lenders now.
