Personal Loans Poor credit

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Vouch uses an old-school concept — co-signing on a loan — to give people with poor credit access to lower interest rates on personal loans. But the online lender’s high-tech approach avoids placing one person on the hook for the entire amount if the borrower defaults.

Borrowers tap into their network of financially established contacts, asking them to “vouch” for their creditworthiness or “sponsor” their loan by co-signing for part of it. Sponsors co-sign for amounts starting at $100.

For every sponsor added, Vouch will lower the interest rate or increase the loan amount accordingly. For example, if you qualify for a $1, 000 loan, adding a sponsor could bump up your loan amount to $1, 250.

For those who qualify for a loan amount above $2, 000, every sponsor added could lower the interest rate by 1%. That means if you start out with a 15.99% rate, adding three sponsors could bring it down to 12.99%.

Those who vouch for the borrower as trustworthy but choose not to co-sign have no effect on the loan rate or amount, but the company says in the future it may reward borrowers with extensive social networks.

A typical borrower offers Vouch 10 to 12 references (you can keep adding references during the life of the loan). “The majority of them will vouch but not sponsor, ” says Yee Lee, Vouch’s CEO. “The person will end up with a handful of sponsors.”

Vouch’s credit requirements for applicants aren’t as strict as with other online lenders, but sponsors must meet the company’s credit standards as well. Applicants must have a minimum credit score of 600; sponsors need to have a score of at least 580 and a solid credit history.

What makes Vouch different

Vouch rewards borrowers for having a diverse support system, dynamically pricing loans according to the number and quality of sponsors. That means you can start out with a specific interest rate or loan amount, but the actual amount can vary as you add qualified sponsors during the life of your loan.

Your contacts have the flexibility to choose whether they want to support you financially and, if so, by how much. The Vouch borrower sends potential sponsors a customizable survey, with a few questions about how the two parties know each other and whether the borrower is trustworthy; there’s also an option to sponsor the loan.

If a person agrees to serve as a sponsor, Vouch conducts a credit check and phones the sponsor to verify identity. For sponsorship amounts under $250, it’s a “soft” credit check, which doesn’t affect one’s credit score; amounts over $250 trigger a “hard” check, which can affect it. If a borrower defaults, the sponsor has to to pay Vouch the sponsorship amount.

Vouch reports payments for both borrowers and sponsors to credit bureaus Experian and Equifax. This means that the credit score of the borrower could improve as a result of timely loan payments. And if sponsors end up having to pay their portion, they could get a credit score bump, too. The downside, of course, is that failure to pay would also be reported and could negatively affect the credit scores for both borrower and sponsor.

Apply now on Vouch’s secure site

Here’s what else you need to know before applying for a Vouch personal loan.

Vouch’s credit standards

  • Minimum credit score required: 600 for borrower, 580 for sponsor
  • Minimum gross income required: None
  • Minimum credit history: None
  • Maximum debt-to-income ratio: 50% including the Vouch loan

Vouch’s lending terms

  • Minimum loan amount: $2, 000
  • Maximum loan amount: $15, 000
  • Minimum loan duration: 1 year
  • Maximum loan duration: 3 years
  • Time to receive funds: Next-day funding (applications are approved within 1 to 2 business days, with loans funded 1 to 2 days after that)

Vouch’s fees and penalties

  • Origination fee: 2% of loan amount
  • Prepayment fee: None
  • Late fees: 5% of payment amount or $15, whichever is greater
  • Personal-check processing fees: None

Vouch review: The bottom line

Vouch is a good option for those with poor credit or limited credit histories, letting them leverage their social network to borrow money at a lower interest rate than they could get without a co-signer. And borrowers build credit at the same time.

But if you have a network of people who’ll go to bat for you, it may be worth asking them directly for an interest-free loan before you borrow money online, as long as you intend to repay it and set up a plan for doing so.

If you have family and friends with good credit willing to back you up, Vouch may be a good fit for you.

Interesting facts

  • American Financial Services Association (AFSA) is a trade association for the U.S. consumer credit industry headquartered in Washington, D.C.. AFSA’s 350 members include consumer and commercial finance companies, vehicle finance/leasing companies, mortgage lenders, credit card issuers, industrial banks and industry suppliers. AFSA is a founding...

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