Getting a loan. For many, the thought conjures up conflicting feelings. On the one hand, it elicits hope and excitement at the prospect of fulfilling your dream of ownership. On the other hand, it comes with overwhelm and creates a lot of questions. Like, is there such a thing as compassionate lending?
How do I navigate the loan process? Where do I get started? Will I even qualify for a loan? And if I qualify, will I be able to keep up with the payments?
These questions are common—and for a reason. Traditionally, the lending process isn’t easy. In fact, it’s not designed to be. Federal lending laws and regulations dictate many of the requirements consumers come up against when seeking a loan. These requirements are meant to mitigate risk to lenders, helping them assess creditworthiness and make safer loan decisions. And while that’s important, it sometimes makes working your way through getting a loan feel cold and impersonal.
When you look at the big picture, lenders only make up half of the equation. The other half comprises consumers with financial hopes and dreams—to buy a new car, to move into their first home, or to fund another big and important purchase.
Unfortunately, a number of these people have their dreams dashed when they set out on the lending journey. According to Bankrate, 21 percent of consumers reported being denied credit in 2020 alone. If you’ve applied for a loan and felt like it was arduous, difficult, and maybe even a little defeating, you’re not alone.
Most loan processes haven’t been designed with people and their dreams in mind. Some rules, like federal fair lending laws, are meant to level the playing field and make lending less discriminatory and more inclusive. When it comes to financial inclusion, these rules are a step in the right direction—but they may not make the process feel any less intimidating.
That’s why some financial services institutions have started to adopt a different approach: something we like to call “compassionate lending.”
Not a law or regulation, compassionate lending is an approach some banks and credit unions have embraced in the spirit of financial inclusion. Some will say it’s inspired by the idea of trauma-informed care, which aims to help people engage more fully and build more trusting relationships—yes, even with their lenders.
A compassionate approach to lending rests on the principles of safety, trustworthiness and transparency, collaboration and mutuality, empowerment and choice, and acknowledgment of circumstances that contribute to inequity.
The approach extends to collections, too. When a consumer falls behind on a loan payment, the lender often hands their loan off to a collections department. You might envision “collections” as a group of hard-nosed representatives demanding that you make a payment. And in some cases, you wouldn’t be wrong.
Institutions that pride themselves on taking a compassionate approach to lending and collections will work with you to find the right solution, whether that’s a flexible loan that meets your needs or a payment schedule designed to get you back on track.
Despite the small (but, hopefully, mighty) movement towards lending and collecting with greater care, a loan can’t be guaranteed for everyone, and there will be instances when consumers experience turn-downs. While “no” isn’t the answer anyone wants to hear, there is a way to pave a path to “yes.”
We get it. Having your loan application denied can feel like a personal rejection. But in fact, your application was reviewed against a number of factors that lenders weigh in loan decisioning. These factors are often black-and-white qualifications that leave little room for flexibility, and when they return a denial, most banks leave it at that. But financial institutions that believe in an alternate approach may give you advice and encouragement that can improve your chances of acceptance next time.
If you’re turned down for a loan, a compassionate lender might encourage you to take these steps:
Lenders who deny a loan are required to send what’s called an adverse action notice, which lists the reason or reasons your application was declined. This will help you understand if you need to focus on increasing your credit score, saving for a larger down payment, or applying for a lower loan amount. It is suggested at this point that you request a free copy of your credit report from one of the 3 credit agencies: Equifax, Experian, or TransUnion. The report will be able to shed additional light on your current financial situation.
When you get your credit report, review it carefully to check for errors. If you spot any inaccuracies, you can dispute them with the credit bureau to clear your personal financial history. Also, look out for signs of identity theft, such as accounts you didn’t open, purchases you didn’t make, or credit applications you didn’t submit.
One of the biggest reasons many loan applications are denied is because the applicant’s credit score didn’t meet a certain threshold. If you’re denied a loan because of your credit, it’s smart to take steps to boost your score, like getting caught up on debt payments and paying down balances. You can also consider enrolling in a credit-building program, like Get Credit from Marine Credit Union, which can help you build your credit and your savings (which can help with a down payment later!).
You can receive professional, nonprofit advice from a certified credit counselor. Marine Credit Union members are eligible for free counseling with GreenPath Financial Wellness. Or, find an agency near you through NFCC (The National Foundation for Credit Counseling).
Not all lenders have the same qualifications or requirements. Lending rates, fees, and terms can vary widely from bank to bank—and so can their approach to working with you. If you’re turned down for a loan by one lender, research others or seek recommendations from friends or family members.
When you’ve navigated the journey and arrived at “yes” in response to your loan application, now you’re faced with the responsibility of keeping up with your monthly loan payments. Sometimes this is tougher than expected.
A lot of things, from unexpected medical bills to unplanned car repairs, can cause you to miss a payment. It’s not the end of the world, but it is important to get back on track. A caring lender is also likely to believe in compassionate collections, and they can help you get in front of a series of late payments.
If you fall behind on a loan payment, it will help to take these steps:
If you know you’re going to fall behind with a payment, let your lender know. Reaching out proactively demonstrates your responsibility, and acting early increases the chances of your lender being able to work with you to create a plan.
If the timing of your due date is an issue, you may be able to change the date your payment is due. Work with your lender to adjust your payment schedule so that your payment comes due after payday or at a different time of the month from when you incur other expenses.
Your lender may be able to offer you the option of extending, postponing, or post-dating payments. Sometimes making smaller but more frequent payments can help you get caught up and back on track. But be careful not to lose sight of the big picture—these solutions can lower your payments but extend the term of your loan and increase the total amount you must repay.
The best way to avoid the consequences of a missed payment is to make a plan that will prevent you from missing a payment! Here are just a few of the steps you can take to be proactive:
At Marine Credit Union, we believe in people helping people. That means that when you’re looking for a loan, we’ll help you understand your options and work to find the right mortgage for you. And, if you ever do fall behind on a loan payment, we’ll work with you to find creative solutions that fit your needs and help you get back on the right track.
Experience a different approach with Marine Credit Union. Learn more about applying for a loan, get started on your loan application, or reach out to our team for help.
