ZestFinance in Los Angeles has introduced a loan product for subprime borrowers whose credit scores nearly qualify as prime.
The online product, branded Basix, will be unsecured loans of between $3,000 and $5,000 and will carry terms of up to three years and annual percentage rates between 26% and 36%. The loans will initially be available in Alabama, Georgia, Missouri, New Mexico and Utah and ZestFinance plans to expand it nationwide later this year.
ZestFinance does not have a loan origination deal in place with a bank and it will keep the loans on its balance sheet. However, CEO Douglas Merrill said he has interest in partnering with a bank.
"To make fair and transparent credit [available more widely] will require partnerships," Merrill said in an interview. Bank charters allow alternative lenders to export loan rates acceptable in their home states.
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ZestFinance is targeting the loans to middle-class U.S. consumers, which it described as "near-prime," a group Merrill said is often denied loans by traditional banks.
"These folks have credit data that is missing or credit data that is wrong," which hurts their ability to qualify for bank loans, he said.
ZestFinance is expanding to near-prime consumers because of the confidence it has in the lending data it's developed for subprime borrowers, he said.
Defaults were "half what our nearest neighbor's [default rates] were," Merrill said.