San Francisco, California-based lender, Vouch, stopped offering personal loans and closed its virtual doors in summer 2016. Rumblings of the company’s closure grew loud in June 2016, according to an article in the Wall Street Journal, which suggested that Vouch was unable to compete with larger online lenders. Read on to learn a little bit about what made Vouch different and what to do if you had a personal loan with this lender.
What Made Vouch Different?
Unlike traditional lenders, Vouch let borrowers leverage their social and contact networks to score low-interest loans. To qualify, an applicant had to have a credit score of at least 580 and at least one adult aged 18 or older who promised to pay at least $100 if the applicant didn’t pay back the borrowed money. Vouch’s lowest interest rates fell between 5% and 3%, with loan amounts between $500 and $7,500. The rate and amount available depended on each applicant’s credit score, income and the number of people who vouched for him or her.
More Vouches, Better Loan Terms
The more vouches each applicant received, the better his or her loan terms could be. For example, for every qualified vouch, borrowers could decrease interest rates up to 5% and increase their loan offers by $250 per vouch, up to $750 in total.
Here’s an example that illustrates how it worked. Susan applied for a $1,000 personal loan with Vouch, and she had five qualified vouches. She received a loan offer of $750 with an interest rate of 14% based on her creditworthiness. Her five qualified vouches allowed her to raise her loan offer of $750 to $1,500. Additionally, the five vouches allowed her to lower her initial interest rate of 14% to 11%.
Why Is Vouch Closing?
When it was founded in 2013, Vouch’s unique lending model seemed like a promising new take on online lending. According to the Wall Street Journal article, Vouch hoped to join peer-to-peer lenders such as Prosper and Lending Club, but the lender wasn’t able to gain the same traction of its larger competitors.
What Happens to Vouch Customers?
Although Vouch is no longer offering personal loans, if you have an existing loan you can expect continuing service. The website for Vouch Financial indicates that new companies are taking over the servicing of all current loans.
About Personal Loans
Before you start searching for a personal loan, request a copy of your credit report from each of the three credit bureaus (Experian, TransUnion and Equifax). You’re entitled to one no-cost copy from each of these credit bureaus every 12 months. Assess your strengths and weaknesses, note your credit score and look for any possible mistakes. If you see a mistake, notify the credit bureau to get it corrected.
Knowing where you sit from a creditworthiness standpoint gives you a head start in searching for lenders. If you have fair credit, you may end up paying a higher APR. If you have good or excellent credit, you might have other options such as a 0% interest credit card offer or a home equity line of credit that might cost you less in the end.
If you pursue a personal loan, compare terms between several options to get the most competitive rates. Don’t take out a loan with a monthly payment that doesn’t fit your budget.
Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33.