Ever since the financial debacle of 2008, it's been harder for consumers to establish their first credit account. Therefore, with no credit history or score, it becomes even harder to get credit. That's created a Catch-22 around new credit that Denver-based startup Self Lender looks to address. The company launched today at TechCrunch Disrupt (see full presentation here, at bottom of post).
Self Lender has a fairly straightforward value proposition.
- Agree to transfer a certain amount of money to yourself for a set period of time via the Self Lender platform.
- Self Lender reports the payments to credit bureaus as a secured loan.
- At the end of the contract period, between 3 and 12 months, the user gets their money back (without interest) or can use the funds as a down payment on a vehicle or other item with the balance financed by Self Lender lending partners (see screenshot below).
The funds are held in an FDIC-insured account. Users can make their monthly transfers via ACH, debit card, paper check/money orders, or via cash through PayNearMe's network. The startup also will accept bitcoin payments, an interesting side note that wasn't mentioned during their demo.
Self Lender will make a few dollars on interest and lead-gen commissions, but its primary business model revolves around charging $3 per month for the service.
Thoughts: Many banks and credit unions offer products with similar benefits. According to CUNA (note 1), 15% of U.S. credit unions offer "credit builder loans." Banks and credit unions also offer CD/saving secured loans. But those deposit-secured loans generally require a good sum of cash to get started. For example, Wells Fargo has a $3,000 minimum deposit and $75 origination fee. Self Lender lets you get started with just $25.
So, the concept is good. But I think it will be difficult for the company to get consumers to entrust them directly, so distribution through FI or PFM partners is crucial. To that end, during the Q&A session, Self Lender said it was hoping to ink deals with one or more major banks in the near future.
Self Lender demonstrates how the money saved in the platform can be used as down payment (9 Sep 2014)
1. Source: NY Times, 6 Feb 2012. http://bucks.blogs.nytimes.com/2012/02/06/credit-builder-loans-can-help-burnish-your-credit-score/