According to a new study, small dollar loans are up to 24x less expensive at Oportun, which uses A.I. to evaluate credit risk and score 100 percent of applicants
True Cost of a Loan analysis by Financial Health Network shows those with little or no credit history can save thousands of dollars over the life of a loan versus high-cost alternatives
SAN CARLOS, California—November 1, 2021—Today, Oportun (Nasdaq:OPRT), an A.I.-driven fintech that provides hardworking people with access to responsible and affordable loans, released findings from the True Cost of a Loan analysis, conducted by the Financial Health Network. This new report demonstrates there is a need for lower cost small dollar loans. One solution is the type of A.I.-powered underwriting offered by Oportun that could dramatically lower the cost of small dollar loans for hardworking people.
Among its conclusions, the study found that a $500 online-only installment loan can cost someone with poor or no credit history more than $2,400 in interest and fees over the life of a loan. By comparison, a responsibly structured loan underwritten using artificial intelligence (A.I.) and machine learning would cost only $102 in interest and fees, a savings of more than 24 times.
The analysis, conducted by the Financial Health Network and commissioned by Oportun, provides an independent look at the lifetime cost of the various small dollar loan options most readily available to people with a poor credit score or no credit history. Importantly, these comparisons are typically unavailable to consumers researching loan options and affordability.
“The reality is that the people who most need affordable credit often pay the greatest amount in interest and fees,” said Matt Jenkins, COO and General Manager of Personal Loans for Oportun. “This rigorous examination of realistic credit options for these households shows that loan structure and the use of advanced technology in underwriting matter. We hope these findings inspire other providers to adopt best practices in product design and A.I. to help maximize affordability and impact for hardworking individuals.”
In a separate study, the 2021 FinHealth Spend Report found that low- and moderate-income families spent $127 billion in interest and fees on alternatives that include the four products used in the True Cost of a Loan analysis: credit cards, installment loans, payday, and rent-to-own. The True Cost of a Loan study used a proprietary model developed by the Financial Health Network to analyze pricing data and household incomes across states to learn how much a typical Oportun customer would pay on loans of $500, $1,500, and $3,500.
Additional key findings include:
- Online-only installment and payday loans as well as traditional payday loans all incurred interests and fees totaling more than $3,000 on a loan of $1,500, while credit cards and Oportun loans both cost less than $500.
- A typical $3,500 payday loan is the costliest with $10,775 in interest and fees, while an Oportun loan is the least costly at $1,645.
- On average, Oportun loans were 6 times more affordable than alternatively available loans of equal amounts.
“It can be difficult for consumers to assess loan costs as credit products vary widely in their structures and fees,” said Marisa Walster, VP of financial services solutions, Financial Health Network. “This rigorous analysis shows that responsible loan construction paired with competitive interest rates can contribute to substantial savings for consumers.”
Oportun uses advanced data analytics, proprietary risk scoring, A.I. and more than 15-years of consumer insights to sustainably serve low- and moderate-income consumers responsibly, affordably, and at scale. Uniquely, this technology enables Oportun to score 100% of loan applicants with a high degree of accuracy.
Oportun’s core product is a simple-to-understand, affordable, unsecured, fully amortizing personal installment loan with fixed payments and fixed interest rates throughout the life of the loan. Oportun loans have no prepayment penalties or balloon payments, are priced below 36% APR, and range in size from $300 to $10,000 with terms of 12 to 48 months.
Since its founding, Oportun has successfully provided more than 4.3 million loans and $10.5 billion in credit, primarily in small dollar loans, saving its customers more than $1.9 billion in interest and fees when compared to other options typically available to people with little or no credit history. By reporting repayment performance to the major credit bureaus, the company has also helped more than 925,000 people begin to establish a credit history.
Click here to download the report.
Oportun (Nasdaq: OPRT) is a financial services company that leverages its digital platform to provide responsible consumer credit to hardworking people. Using A.I.-driven models that are built on 15 years of proprietary customer insights and billions of unique data points, Oportun has extended more than 4 million loans and over $10 billion in affordable credit, providing its customers with alternatives to payday and auto title loans. In recognition of its responsibly designed products which help consumers build their credit history, Oportun has been certified as a Community Development Financial Institution (CDFI) since 2009.