How Artificial Intelligence (AI) can transform lending

Artificial intelligence (AI) is hailed as the fifth industrial revolution, following the transformative impacts of electricity, computers, the internet, steam power, and mechanization. We’ve witnessed AI revolutionize information consumption, creation, and video production. 

It’s lending’s turn to experience this breakthrough, with companies like Lendsqr leading the charge. So, how will AI transform lending? Let’s explore three key ways:

Featured read: 5 ways Lendsqr plans to use AI for lenders

3 ways AI can transform lending

AI is shaking up the lending industry, making it faster, fairer, and more accessible. Here’s how:

Limited credit footprint

Why it matters: Traditional lending models rely heavily on an existing credit history, which can disadvantage individuals without a credit footprint. This model depends on subjective data the borrower provides, often leaving many without access to loans.

How AI helps: AI can assess borrowers’ creditworthiness by analyzing their digital footprint through a smartphone app. Instead of relying solely on traditional credit history, the app collects data and feeds it into a credit scoring platform. This platform evaluates various factors, including social media activity, browsing history, and geolocation, to provide a clearer picture of the borrower’s financial behavior. In China, this is known as one’s “social credit history.” This approach could render traditional credit bureaus obsolete if properly implemented. Loans would then be based on social interactions rather than credit history alone. Lendsqr is actively working on this, supported by a recent federal government grant based on this ideology. 

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Enhanced communication interface

Why it matters: The current loan application process is rigid and streamlined: apply for a loan, fill out a form, and wait for a response. While functional, this approach lacks nuance, particularly in a delicate domain such as credit.

How AI helps: AI-powered Large Language Models (LLMs) can enable sophisticated chatbots and virtual assistants that provide human-like interactions. These virtual assistants can communicate with new prospects, better understand their social credit history through online sentiment analysis, and ask clarifying questions instead of outright rejecting borrowers. They can also provide clear rationales for approvals or rejections, transforming how individuals experience credit. This is especially important in African countries, where credit is often stigmatized as irresponsible.

Featured read: 5 reasons why a digital lender must have a loan app

Advanced financial algorithm

Why it matters: The intricacies of borrowing, like calculating the actual loan cost, interest rates, and repayment strategies, often overwhelm borrowers. Many don’t engage deeply with these critical details.

How AI helps: AI can handle the complex calculations associated with borrowing, making it easier for borrowers to understand their financial commitments. AI can deduce if an individual can afford a loan or if buying an item outright would be more financially straining than taking a loan. This alleviates the cognitive load on borrowers, allowing them to make more informed decisions without the hassle of manual calculations.

4 reasons why AI will make an impact on lending

Reduced human error: AI minimizes errors that can occur in manual lending processing, ensuring more accurate assessments and decisions.

Low bias: AI can reduce biases that human lenders might unintentionally introduce, promoting fairer lending practices.

Detection of patterns: AI excels at identifying patterns in data that might be invisible to humans, allowing for more predictive and proactive lending strategies.

Affordability: AI-driven processes can lower operational costs for lenders, potentially translating to better loan terms for borrowers. 

Expansion possibilities: AI can enable lenders to reach underbanked populations by leveraging alternative data sources, expanding access to credit where it was previously unavailable.

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Where tech and finance meet

Technology and finance are getting closer, and artificial intelligence (AI) is grabbing attention for its potential. It promises to speed things up, make them more accurate, and boost efficiency, which could really change how loans are managed. But, it also comes with challenges that need careful handling.

Here at Lendsqr, we’ve got a solution to help improve your lending processes. Our software is all about fine-tuning credit access and making loan approvals quicker. With Lendsqr, you can bring your lending up to speed and stay competitive in fintech. Send us a message at [email protected], and let’s get you started.