Personal loan lending slowed significantly in the midst of the COVID-19 pandemic but has since regained its strength, according to a report from J.D. Power.
Competitive rates, easy access and a variety of options has led to an increase in demand for personal loans, especially among the financially vulnerable population, according to the J.D. Power 2022 U.S. Consumer Lending Satisfaction Study.
"Increasingly, personal loans are filling the void left by the end of pandemic-era relief efforts, which introduces some important new dynamics for the banks, credit card companies and fintechs at the center of this marketplace," Craig Martin, J.D. Power's managing director and global head of wealth and lending intelligence, said. "While customers are largely satisfied with these products and the market is continuing to grow, it is important for lenders to ensure the experiences they deliver are matching the promises they are making to support improved financial health."
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Financially vulnerable consumers tackle debt with personal loans
In its report, J.D. Power classified about 38% of personal loan borrowers as financially vulnerable. These consumers have taken out a personal loan to pay down debt or for debt consolidation, to lower their interest rate on their current debt and to lower their monthly debt payment.
Some lenders specifically cater to higher-risk borrowers and have double the average number of financially vulnerable consumers, the report said.
"As the personal loan market continues to grow rapidly, it is critical to note that there is not a one-size-fits-all option that can deliver all things to all consumers," Tom Lawler, J.D. Power's head of consumer lending intelligence, said. "We’re seeing a clear phenomenon in which industry-level averages give one perspective, but the experience of certain customer groups at the brand level can be materially different.
"The most successful firms have a clear understanding of the different needs and expectations of their target clients and optimally invest resources to meet or exceed the expectations of those different groups," Lawler said.
When comparing consumer satisfaction among personal loan lenders, Marcus by Goldman Sachs ranked the highest (776 on a 1,000-point scale), followed by U.S. Bank (757) and American Express (754).
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Personal loans open doors to other financial products
Customer loyalty after taking out a personal loan reached an all-time high in 2022, according to J.D. Power. Overall customer loyalty increased to 61% of loan customers, meaning they are likely to use their lender again.
This provides an opportunity for lenders that historically only offered personal loans, allowing them to expand with new financial products such as checking, savings, credit cards and investment options. This also introduces consumers to new financial options, allowing them to potentially improve their financial situation.
If you are looking to take out a personal loan, using a financial marketplace like Credible can help you compare multiple options at once. You can also contact Credible to speak to a personal loan expert and get all of your questions answered.
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