Written by Jeff Keltner, SVP Business Development
Personal loans are an extremely valuable asset class for consumer banks and credit unions. Every bank and credit union can benefit from offering this kind of unsecured loan — and here’s why.
1. Consumers Want Them
Personal loans are the fastest-growing category in consumer lending, with digital products leading the way. Online lenders and non-traditional financial institutions are now originating the majority of personal loans. Going forward, the S&P predicts that online personal loan originations will roughly double by 2024.
Looking at things from the customer’s perspective, it’s easy to see where the digital transformation of lending comes from.
First, shopping online gives customers a level of control that they never had before. With just a few clicks, a borrower can find the best-priced personal loan available with the highest rated customer experience.
With most consumers doing their shopping on mobile devices, they tend to apply for loans through online and other non-traditional lenders. In 2020, mobile applications made up over half of the loans that were originated through Upstart’s platform.
Meanwhile, banks and credit unions find themselves left behind, with the potential missed opportunity to service their consumers they have built a relationship with.
By adding personal lending to their portfolio, banks and credit unions can keep more customers in-house. Those customers see that their bank understands their needs, and the relationship gets stronger
2. Personal Loans Have a Positive Impact
An Upstart retrospective study showed that while 80% of Americans have never defaulted on a credit obligation, fewer than half have a credit profile that qualifies them for the low rates traditional banks offer.
These borrowers are looking to pay off this debt with a lower APR. The reduced rate makes the debt more affordable, lowering the borrower’s monthly payment and slowing down interest accumulation.
They can then pay off their debt faster, reducing their debt-to-income ratio and improving their risk profile. Their overall financial picture improves and they become better banking customers, so everyone wins.
By adding personal lending to their portfolio, banks and credit unions can keep more customers in-house.
3. Higher Margins for the Lender
Personal loans are an attractive asset class to put on a lender’s balance sheet.
They’re unsecured debt, so they cost the customer slightly more. This means they yield higher than more commonly offered consumer assets like mortgages and auto lending. By adding personal loans to its portfolio, a lender can get a bit of extra margin.
Upstart strongly believes in the power of innovation to drive growth. Through digital transformation and implementation, we’ve helped numerous banks and credit unions to:
- Mitigate risk and reduce losses
- Drive growth by identifying more creditworthy borrowers
- Improve efficiency with automation
- Boost customer delight with an all-digital experience