Peer-to-peer lenders lead increase in personal loans

Personal loan applications rose strongly during the December 2016 quarter, with much of the growth coming from online marketplace lenders.

The latest Quarterly Consumer Credit Demand Index from credit agency Veda shows the number of personal loan applications for the December 2016 quarter was 12.4 per cent higher than the December 2015 quarter.

“Growth in personal loan applications is predominantly coming from products offered by new entrants in the personal lending space, beyond traditional credit card and auto finance markets,” says Angus Luffman, Veda’s general manager of consumer risk.

He is referring to the new wave of online marketplaces that can offer investors higher rates of interest than they can get from bricks and mortar lenders, such as banks.

Many of these new type of lenders call themselves peer-to-peer (P2P) lenders. “But there is no clear definition of what a peer-to-peer lender is, but what is common to all is that they are digital players,” he says.

“They are also very focussed on giving the customer the best experience,” Luffman says.

They tend to use “risk-based pricing”, where borrowers with better credit scores pay lower rates of interest than borrowers with lower credit scores. They tend to offer only personal loans.

“We are seeing a lot of the growth coming from these players,” Luffman says.

With traditional lenders, such as banks, everyone applying for a personal loan considered an acceptable risk pays the same interest rate.

Investors tell peer-to-peer lenders how much money they want to invest, how long they want to lend the money and the interest rate they would like.

There’s often a bidding process that matches investor-lenders with borrowers.

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Source: Peer-to-peer lenders lead increase in personal loans – Sydney Morning Herald