Independent Banker - July 2021 - 64

Guest Experts:
Lending
Trends and opportunities in personal loans
Challenge/ Solution: Personal loans have exploded in popularity, with balances tripling over the past 10 years to become the fastest
growing segment of the consumer debt market. Although banks face competition from fintechs, there is tremendous opportunity in
this space for traditional financial institutions to grow their share of the market - and their bottom line.
more than 65 percent of borrowers take out a personal loan so
they can consolidate debt or refinance credit cards. Personal
loans are a safer and less expensive method of borrowing
than the often-predatory payday loan alternative.
Use consumer data to create a profile of borrowers with a
low credit risk who may be good candidates for a personal
loan to help fund specific needs such as home improvement,
for example. Financial institutions should understand that
the profile of the personal loan borrower has shifted a bit,
thanks to the rise of fintech lending. Although personal loans
were traditionally marketed to subprime borrowers, above
prime borrowers now hold around 40 percent of outstanding
personal loans.
The rise of personal loans started mid-2019, driven by
historically low unemployment and a steady economy which
boosted consumer confidence. The growth in fintech lending
has made personal loans easier to obtain and more common.
Consumers can get personal loan proceeds in days compared
with up to a month for proceeds from a home equity loan.
There has been a surge in online lenders that market their loan
products as a low-cost alternative to credit cards.
Financial institutions should not view personal loans as
merely a quicker, easier or more convenient loan alternative
for emergency projects, but rather as an opportunity to
help consumers with a good credit history identify a path to
freedom away from high-interest credit card debt. In fact,
It's important for financial institutions to examine their
customer experience - both in-branch and digitally - to
ensure their process is easy and convenient. This includes
making sure all representatives are knowledgeable about
the types of secured and unsecured lending products the
institution off ers. Automated underwriting delivers a decision
instantly, making the loan application process easier for
consumers.
Financial institutions should make good use of data to identify
consumers that are most likely to use a personal loan for a
specific reason and to personalize loan marketing activities to
speak to that specific need. Some examples of such needs
include auto financing, medical bills, moving/relocation
expenses, business financing and wedding expenses.
The outlook for personal loans remains strong. Banks are
well-positioned to serve the growing consumer demand for
personal loans because they have the ability, processes, name
recognition and customer loyalty to do so.
Stephenie S. Williams, Vice President,
Financial Institution Marketing Product and Strategy
stephenie.williams@harlandclarke.com
www.harlandclarke.com

http://www.harlandclarke.com

Independent Banker - July 2021

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