New data reveals that personal loans are the fastest growing consumer lending category. Outstanding balances of personal loans jumped around 18 percent to $120 billion in the first quarters. The percentage of loans originated by FinTech firms is also growing at a rapid pace. In 2010, they originated less than 1 percent of personal loans. According to Bloomberg, they originated 36 percent in 2017.
What is a personal loan? This financing option is known as “unsecured” debt, since they are not backed by collateral like a mortgage or auto loan. The borrower’s credit score is used to determine whether or not they qualify and at what interest rate.
Personal loans have been around for a very long time. Remember ‘It’s a Wonderful Life’, George Bailey and his personal loans? But it is FinTech lenders that should take credit for reinvigorating this loan category. Web-based firms like LendingClub, Social Finance Inc. and Prosper Marketplace Inc. have been a major force behind personal loan growth.
Last October, Goldman Sachs launched Marcus. This online platform offers unsecured personal loans to consumers. At that time, the company told creditworthy borrowers that they could apply for a fixed-rate, no-fee persona loan of up to $30,000 for periods between two to six years. Marcus has already lent out more than $2 billion. Goldman also revealed in November that it could reach $13 billion over the next three years.
“For many who manage debt payments on high-interest rate credit cards, a straightforward personal loan is a better solution,” said Harit Talwar, head of Marcus by Goldman Sachs, in a press release. “Marcus offers an option for consumers who are searching for a simpler alternative to credit card borrowing, where rates can change and multiple fees can be charged.”
The Force Behind Online Lending
So, what is leading to such rapid growth in the online lending industry? Banks are dropping the ball. Consumers and small businesses are not finding the financing they need. Thus, alternative lenders are stepping in to offer their own merchant loan. These financing options are much easier to qualify for, and are the amount small businesses really need.
The speed in which funds can be secured is also a huge benefit. Online applications can be completed in minutes, and funds can be secured in a matter of days. With a bank, the borrower will wait weeks or even months to learn if they have been denied or approved. Above all, as a consumer or small business owner, it is always nice to have options.
Author Bio:As an account executive, Michael Hollis has funded millions by using alternative funding solutions. His experience and extensive knowledge of the industry has made him a merchant loan expert at First American Merchant.