Fintech drives personal loan demand
Innovative personal loan products offered by new market entrants are driving consumers away from credit cards.
The most recent Quarterly Consumer Credit Demand Index released by credit bureau Equifax (formerly Veda) has shown a continued surge in personal loan applications compared to credit cards.
Credit card demand fell by 3.8% in March 2017 year-on-year, while personal loan demand saw a sharp increase of 13.5% compared year-on-year.
Senior GM of consumer products at Equifax Angus Luffman has said that the significant rise in personal loan demand is underpinned by new lending entrants. One clear example of this is fintech lenders that offer peer-to-peer (P2P) personal loans, a sector which has grown from one lender (SocietyOne) in 2012 to close to more than 10 lenders today in both the personal and business lending markets.
The Credit Demand Index supports Luffman's claim, with the surge in applications being confined to applications for non-auto personal loans, the market where P2P personal loan lenders have concentrated their products.
P2P lenders use risk-based pricing to give borrowers a rate based largely on their credit score. This can see borrowers awarded with rates as low as 4% for an unsecured personal loan, which they can then use for debt consolidation or even just to make a large purchase.
Quarterly year-on-year Consumer Credit Demand
| Dec 15 | Mar 16 | Jun 16 | Sep 16 | Dec 16 | Mar 17 | |
|---|---|---|---|---|---|---|
| Credit Demand Index | 9.4% | 4.3% | 1.8% | 2.5% | 7.7% | 4.6% |
| Credit card | 7.3% | 1.8% | -0.7% | -0.3% | 2.9% | -3.8% |
| Personal loan | 11.8% | 7.2% | 4.5% | 5.3% | 12.4% | 13.5% |
| Personal loan (auto) | 6.7% | 0.7% | 8.7% | 8.0% | 4.4% | -2.2% |
| Personal loan (non-auto) | 7.5% | 2.2% | -4.0% | -3.6% | 2.3% | 19.4% |
Data from Equifax
“The data from the March Index by Equifax showed increased personal loan activity, which is consistent with the recent credit data from the Australian Bureau of Statistics (ABS), which showed that new personal finance commitments in January grew by 3.9% year-on-year," Luffman said.
"At the same time, the Reserve Bank of Australia has found that people are making more frequent, lower value transactions on their credit cards, with purchases per account up by 6.3%, while the spend per purchase was down by 4.6%."
Luffman said that the data showed that consumers are adapting to different payment options at the point of sale.
"While credit cards are being used more for everyday transactions, it is likely that consumers are funding a greater number of higher value household purchases through personal loans," Luffman said. "The growth in personal loans has, in large part, been driven by newer lenders who cater to consumer’s increasing demand for an online experience.”
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