A debt consolidation is a personal loan that allows you to borrow money equivalent to your existing outstanding debts. It cannot reduce your debt burden, but it transforms one debt into another. Consolidation is generally aimed at subprime borrowers struggling with high-interest debt, such as payday loans. Consolidation loans enable you to extend a repayment term. Now you are not supposed to discharge your debt in one fell swoop. You will instead be paying money in fixed instalments. This will make it easier for you to manage your debts.
However, qualifying fir a debt consolidation is not a conch. There are several terms and conditions you need to follow in order to have a lender give you the nod. For instance, your credit score and repayment capacity must be strong. At the time of consolidating your debt, a lender would normally take stock of your overall financial condition. If they find that you would not be able to keep up with payments, they will not approbate your application for consolidation.
But AI is playing a crucial role in offering debt consolidation solutions. It Is not only helping lenders but debtors too. This blog discusses the role of AI in debt consolidation solutions.
How AI can help borrowers
Here are the ways how AI can help with borrowers:
- Personalised strategies
Every borrower’s financial situation is different. Therefore, a lender has to carefully determine whether you can actually repay the debt once you have consolidated it. It could be challenging for a lender to evaluate your financial circumstances, especially when they have multiple applications.
Here comes the role of AI. This helps design a personalised strategy. AI has the potential to evaluate your whole financial condition. Based on your real financial situation, AI could help you know what kind of strategies you can use in order to discharge your debt.
AI tools could also help you know how you can create a budget in order to prioritise high-interest debts. These tools will recommend consolidation only if you prove your repayment capacity.
- Automated communication
Another benefit of using AI tools in assessing consolidation applications is that it can help handle routine tasks. It can be hard for borrowers to be able to establish face-to-face communication. There could be various reasons for it such as further afield lenders or it could be embarrassing for you to discuss all financial details with them.
Here comes the role of Chatbots. They can handle routine tasks like setting up payment arrangements. They are also efficient to provide quick answers and sending payment reminders. Automated communication is a great way to be on top of your debt because service is readily available as and when you need it.
- AI helps provide data-driven insights
With the help of AI tools, it has become much easier for borrowers to understand their finances in a much better way. One of the biggest benefits of AI is that it helps with real-time data analysis. You can better understand your financial condition and come up with an effective repayment strategy.
AI could also help you determine whether the loan you are applying for could be managed by you or not. In other words, it could warn you against any red flags. At the same time, it could also enlighten you about government benefits that you can apply for when you have lost your job or are in a tight spot.
How AI can help lenders
Here is how AI can help lenders:
- Enhanced efficiency
AI has become so helpful for lenders. With the help of AI, lenders can automate various tasks such as screening of applications and sending reminders for payments. Undoubtedly. AI helps improve efficiency without involving human beings in doing repetitive tasks. With the help of AI, lenders can handle more complex cases without further ado. This can increase overall efficiency.
- AI helps gain insight into data
One of the biggest benefits of AI is that it can predict complex scenarios and identify patterns. This would help lenders speed up the collection process. In addition, it can help identify the trends in payments. It is likely that borrowers struggle with large payments, but not with small payments. This is a great way to consider how much debt consolidation you should approve.
- AI helps improve collection rates
AI helps with improving collection rates, too. With the help of predictive analytics, lenders can establish a communication strategy in order to ensure that borrowers pay off their debts on time. Debt consolidation loans could be quite challenging to approve without careful perusal of borrowers’ repayment capacity, but it has become easier with the help of AI.
- AI helps provide support
Lenders are not just supposed to provide financial products to borrowers, but they are also supposed to provide you with support. As a borrower, you might need support services to help you get rid of debt.
When you are struggling with multiple debts, you should ensure that you get the best advice about debt management from your lender. With the help of AI, your lender can easily evaluate your financial circumstances and suggest some constructive methods.
- AI also helps mitigate risks
The biggest benefit of using AI is that it helps reduce the risk on part of lenders. AI helps with monitoring accounts. Lenders can easily pay heed to flagging issues and forecast potential defaults. Of course, they would make adjustments and plans in relation to the money you could borrow. With the help of AI, lenders can preclude themselves from the struggle of collecting payments and defaults on consolidation loans.
The bottom line
Lenders are relying on AI in order to carefully assess loan applications of borrowers. With the help of AI, it has become much easier for them to assess borrowers’ overall repayment capacity. They can easily set strategies for collection and decide how much money they can borrow.
However, AI is also directly helping lenders. Now it has become easier for lenders to gain insights into real trends, such as payment behaviour and what kind of financial problems they come up with. When lenders are already aware of what kind of problems borrowers are facing, they can easily suggest effective solutions without risking their own interests.
AI is not novel in the lending industry, but in recent years, it has become a great way to provide better and more effective lending services. AI has advanced rapidly, helping with even those areas that it never did before.
Although the role of AI is great, lenders are yet to be personally involved in lending money to ensure that borrowers do not end up paying more than they should.
