Loan applicants to get better rates if their friends trust them

Social clout does not necessarily translate to financial stability, but we have already seen companies such as Hotelied offer discounts to people with influence on social networks. Now, financial start-up Vouch is putting a new twist on that logic — turning to the recommendations of people’s friends and family to decide their loan rate.

Vouch is a lending start-up which offers personal loans with competitive rates to consumers who can find people to ‘vouch’ for their financial responsibility. Customers download the Vouch app and enhance their credit score by leveraging the trust of their friends and family. They create a network of sponsors who ‘vouch’ for them and pledge small amounts of money — from USD 25 — towards their loan: these will only be payable if the customer defaults on their payment. The more people who sponsor a loan, the lower the interest rate Vouch will offer.

Vouch offer installment loans of USD 500 to USD 7,500, with interest rates between 5 and 30 percent. The rate varies depending on numerous factors including how many people vouched for the applicant and how many went as far as to sponsor the loan. More subtle elements are also at play — such as how quickly people responded to a ‘vouch’ request and what answers were given in a short survey they are required to take.

Could more companies look to character references rather than statistics when assessing consumers?