Personal loans have long been thought of as a last resort when unexpected costs or major life events come up. However, the rise of alternative lending has changed the way consumers think of this option.
Born of necessity
The main reason for the alternative lending boom? Simple necessity. In the aftermath of the Financial Crisis, banks faced tougher lending regulations, opening up a market for newer, disruptive platforms. Companies like Lending Club and OnDeck have already gone public and more IPOs are expected in the future. Foundation Capital, in fact, puts the industry’s absolute value at $1 trillion. The convenience, transparency and hands-on nature of alternative lending technology has also transformed the process of taking out a personal loan. Before, a personal loan required taking a trip to the bank, dealing with bank personnel, filling out tedious paperwork and hoping for the best. The only way to ensure you are getting the best rate available means- you would need to rinse and repeat this process at various banks. It’s understandable, then, that the idea of taking out a personal loan to pay for something like a family vacation is not part of Americans’ current lexicon. In the past, by the time borrowers got through with the hassle involved in rate shopping, they likely needed funding for another vacation.
A shift in thinking
Statistics generated by alternative lenders such as LendingClub show that borrowers’ attitudes toward personal loans have changed. These loans are no longer looked at as a last resort to be avoided unless absolutely necessary. Lending Club’s loan issuance statistics highlight the shift in thinking toward personal loans. In addition to taking out personal loans to pay off high-interest credit card debt or refinance and consolidate existing debt, more than 1 out of every 4 Lending Club customers now use personal loans to pay for vacations, car financing, medical expenses, home improvements, or other common everyday expenses.
Real world benefits
There are several real world benefits of alternative personal loans, including home improvements. More than $11.9 million of LendingClub’s loans in Q3 of 2015 were used for this category, for example. Perhaps borrowers now realize that smart home improvements can often be closer to an investment than an expense. In addition, personal loans are often used for a wide range of other big expenses. Rather than making five or more different credit card payments per month at much higher interest rates, a single personal loan can consolidate credit card debt at a lower rate. Weddings are another category where personal loans are becoming increasingly more common. The average cost of a wedding is around $30,000. Without help from loved ones, or a sizeable savings account you may not be able to front the entire cost but a personal loan can help ensure that you get the wedding of your dreams without budget-related sacrifices. But that’s not all. Often times, big expenses can come out of nowhere and instantly create financial chaos in your life. A personal loan can be the saving grace when unexpected medical or funeral expenses arise or if insurance doesn’t completely cover damages from a fire or other natural disaster. Applying for an alternative loan can allow you to manage these unexpected expenses quickly and responsibly.
Alternative lending has made personal loans so accessible and instantaneous that they are no longer simply the last resort in managing a financial catastrophe. A growing number of people are realizing they’re a resource that can be used for anything, from getting a car tune-up to expanding the home along with a growing family.
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