The number of American consumers who take out unsecured personal loans has continued to increase over time. In fact, in the last years, the rate of growth in this loan type has become faster than in other types of debt, including credit cards, mortgages, auto loans, and even student debt. Furthermore, this increasing trend in personal loans is expected to continue.
How It All Began
The necessity for online lenders can be traced back to when banks can no longer offer the money consumers needed in handling their financial problems. As more banks became stringent concerning their lending allowance in 2008, more people began to acquire cash fast from alternative lending sources. Moreover, even after the said financial crisis in 2008, banks were still limited in their willingness to lend money to the consumers regardless of whether it is a full mortgage or just a small personal loan.
This was when online lenders entered the scene. The availability of online lenders gave consumers an option for faster loan application approval and disbursement. Furthermore, although financial status and credit score still play a huge role in the approval process in most cases, online lenders still offer a more convenient way for consumers to access funds.
While the availability of loans consumers get from banks has reduced back then and paved the way for online lenders, it is not the only reason this alternative has been on-trend. In fact, the digitization of lending was viewed as inevitable because of the remarkable growth financial technology is experiencing. Moreover, many view online banking as the future of finance.
The Role of Fintech
There has been an increase in taking out a personal loan in the last years because of fintech lenders. The start of personal lending growth can be traced back to loans that originated from fintech lenders in 2013. Furthermore, although these are facts, traditional banks still play a vital role in personal lending.
According to TransUnion, when it comes to personal loans, an estimate of 38% originated from fintech lenders. The growth has been astonishing since fintech lenders are only responsible for about 5% of personal loans way back in 2013. Moreover, the current percentage from fintech lenders now exceeds that of banks and credit unions.
Benefits of Choosing Fintech Lenders
Below are the advantages you can get from choosing fintech companies as your lenders:
Faster Transaction
Taking out a personal loan from fintech lenders is one of the fastest and convenient ways to access cash. Most of the time, the loan approval process can be done in a day. Furthermore, banks usually get things done slower, usually 3 to 4 days, due to their stringent qualifications.
Lenient and Less Documentation Needed
Identity and information checks are not really an issue these days. Processing can become a lot faster due to digitization. That is why it would be easier and more convenient for consumers to get a personal loan or any loan through fintech lenders.
Credit Score
These days, a lot of people have been more aware of the importance of having a good credit score when it comes to financing. However, when you have a bad credit score, it doesn’t mean you won’t have a chance to get a personal loan. Furthermore, fintech lenders have been using their own alternate data analytics and algorithms to assess the risk a consumer might have, creating an opportunity for these types of borrowers to improve their credit scores and get the funds they applied for.
Cash In Emergency
As mentioned earlier, loans from fintech lenders can be quick and easy. You won’t need to wait a couple of days. Moreover, the disbursement of funds is as fast as the approval process. Most of the time, once you get approved, the cash you applied for will automatically be transferred to your account.
Innovation at Traditional Banks
As digitization proceeds in space, many traditional banks have adopted the use of alternative data and other technological advancements. Both small and big banks have enriched and streamlined their mobile and online offerings in an effort to satisfy the consumer’s need and demand for speed and convenience. In fact, several traditional banks have already partnered with technology firms.
Many traditional banks now even use fintech lending platforms to issue loans by using the bank’s name, while other banks settle and clear lending transactions on behalf of the fintech firms. Despite the competition banks face due to fintech lenders, most bankers view fintech innovations as a great opportunity for them to diversify their products. Moreover, fintech innovations can also be an excellent way for them to offer and reach more convenient services.
To Wrap It Up
Due to the growing number of fintech lenders, Americans have also increased their use of unsecured personal loans. The reason behind this is because a lot of consumers are attracted to the speed and convenience provided by these lenders. Furthermore, to keep up with the changing consumer expectations, traditional banks are now looking forward to adopting fintech innovations.
