Last Friday, Chetwood Financial, a Welsh banking challenger, has launched the first so-called dynamic loan in the world, where the interest rate declines as the borrowers improve their credit scores.
It was built in partnership with Clearscore, a credit rating company and was launched under its brand Livelend. The loan uses technology to monitor the credit score of a customer and it will reduce its rate at three-month intervals as the risk of the loan improves.
The product will cater to the people who are excluded from the financial industry by the collapse of various pay-day lenders such as Wonga, which usually served those who are not able to qualify for products because of a bad credit history.
The fintech company has been able to outshine several rivals to the punch, including the likes of Starling Bank and Monzo, who said that they were considering similar products this week.
Anne Boden, the chief executive of Starling Bank, said that it had no intentions of entering the market any time soon. However, she added: “we are conscious that there is a demand for loans from people with affordability issues”.
She continued: “It’s an under-served market. We are constantly looking for innovative technological solutions to problems such as these.”
Last July, Jamie Dimon, the chief executive of JP Morgan, informed Business Insider that the investment bank was also developing some ways to reward its customers for boosting their credit scores. The company was said to be commencing the testing of various tools in the coming months, focused on helping the consumers in the improvement of their financial health.
The chief of Clearscore, Justin Basini, stated: “We are really excited to bring this fairer form of credit to our users.”
He added: “This innovation will give even more people access to cost-effective credit.”