Personal loans have been booming for the past couple of years with double-digit growth year-over-year. But the party can’t last forever, right?
In a recent Experian webinar, experts noted they have seen originations leveling off. In fact, numbers indicate it’s gone from leveled off to a slight year-over-year decline. They projected the first quarter of calendar year 2017 may also be down, but then we’ll see a peak again in the second quarter, which is typical with the seasonality often associated with personal loans.
The landscape is changing. A recent data pull revealed a 9-point shift in the average VantageScore® for originations from Q3 to Q4 of 2016. Lenders are digging deeper in order to keep their loan volumes up, and it is definitely a more competitive marketplace. The days where lenders were once able to grow their personal loan business with little effort are gone.
Kelley Motley, Experian’s director of analytics, noted some of the personal loan origination volume shifts may be due to the rebound in the housing market and increased housing values, enabling super-prime and prime consumers to now also consider home equity loans and lines of credit, in lieu of personal loans.
Still, the personal loan market is healthy. Lenders just need to be smart about their marketing efforts and utilize data to improve their response rates, expand their risk criteria to identify consumers trending upward in the credit ranks, and then retain them as their cash-flow and financial situations evolve.
In the presentation, experts revealed a few interesting stats:
- 67% of those that open a personal installment loan had a revolving trade with a balance >$0
- 5% of consumer that close a personal loan reopen another within a few months of the original loan closure
- 68% of consumers that re-open a new personal loan within a short timeframe of closing another personal loan do so with the same company
Together, these stats illustrate that individuals are largely leveraging personal loans to consolidate debt or perhaps fund an expense like a vacation or an unexpected event. Once the consumer comes into cash, they’ll pay off the loan, but consider revisiting a personal loan again if their financial situation warrants it.
The calendar year Q2 peak has been consistent since the Great Recession. For many consumers, after racking up holiday debt and end-of-year expenses, the bills start coming in during the first quarter. With the high APRs often attached to revolving cards, there is a sense of urgency to consolidate and lock in a more reasonable rate. Others utilize the personal loan to fund weddings, vacations and home improvement projects.
Kyle Matthies, a senior product manager for Experian, reminded participants that most people don’t need your product, so it’s essential to leverage data find those that do. Utilizing propensity score and attributes, as well as tools to dig into ability-to-pay metrics and offer alignment can really fine-tune both an organization’s marketing and retention strategies.
To learn more about the current state of personal loans, access our free webinar How lenders can capitalize on the growth in personal loans.