The Flaws of Traditional Loans (The Need for JOOS)

JOOS is a new blockchain project looking to revolutionize the lending system. Some may ask, exactly what need there may be? Seems like a reasonable question to ask, at a cursory glance, everything is fine. There are large lenders offering loans, with rates determined by a credit score. If loans are paid on time or ahead of time, your credit score increases, and delinquent behavior results in a ding to credit scores. If a debtor engages in continued delinquent activity or defaults, the loan goes to a third-party collections agency and a settlement is reached.

Unfortunately, all of these pieces of the financial puzzle don’t fit together properly. Regulation and a key lack of transparency means that none of this works as advertised. This all begins with credit scores, which are essential to the smooth functioning of any lending system. These scores are really just a rating of the trustworthiness or reliability of a debtor, with higher scores reflecting a more reliable debtor and lower ones reflecting failure to make payments or other negligent activity. If a credit score slips too far, it could bar limit individual to unfavorable interest rates or make them ineligible to receive loans altogether.

The issues begin with the automated system, making it impossible for individual or time-limited circumstances to be considered. With the way the system is currently set up, it makes it near impossible for a person to recover a high credit score from a brief period of illiquidity. This is in addition to the rather scary fact that data taken into these systems is often incorrect. These databases contain duplicate information, or even worse they confuse the data of separate people with similar identifying information. There also might just be a lack of a complete financial history of an individual or business.

Problems continue with the third-party collection system. When a loan becomes delinquent, it generally becomes unprofitable for a large financial institution to pursue collections. The debt is then transferred to a third-party agency at a fraction of its original value, offering a potential profit if settlement is reached. Previously, these third-party agencies were relatively small and localized, allowing them to connect with debtors in a more personal way. This level of personal connection allowed for agreements to be reached amicably, working around various the various personal situations of the debtors. Making a settlement with a third-party agency was preferable as they were generally local, with collection agents even possibly knowing friends and family of the debtor.

Currently, governing bodies have forced the merging of smaller agencies into large conglomerates, loosing the personal connection to debtors and real consequences for delinquent debtors. These large agencies are now mostly ineffective in collecting off serious delinquents with them able to simply ignore whatever is thrown at them. JOOS has answers to all of this, providing an immutable record of all transactions, enabling credit scores to be accurately recorded. The issue of third party collections has also been handled, with the advent of an innovative social shaming mechanism for third-party collectors to utilize.

For those who ask “what use is there” for a new financial lending system, they can ask no more. Obviously, after just a simple examination of the current state of affairs, there is a major need for the lending system to be redesigned, with JOOS delivering in spades. There is the added benefit of enabling developing nations and economies access to favorable loans, allowing these nations economies to grow in a major way. Make sure to keep eyes on JOOS, as they are going to prove how much better lending can be when augmented with blockchain technology.