Over the last decade, consumers have embraced the rising quality of personal loans fueled by smaller, more nimble technology.
Given the economic uncertainty around the pandemic, will that appetite fizzle out or burn well into the future?
To find out, we spoke with Scott Satov, Chief Executive Officer at Loans Canada.
He went over:
- Loan Canada’s part in the rise of personal loans
- How technology has shaped the personal loan market
- The present (and future) state of personal loans
Loans Canada’s part in the rise of the personal loan
Back in 2010, Scott and his partner bought a website with about 8,00 viewers per month called Mortgages Canada.
It was a place internet users could go to apply for — you guessed it — mortgage loans.
After about 2 years, they decided to switch verticals into personal loans.
And they immediately knew it was the right choice.
Demand was through the roof. Applications were flowing in.
Everyone needed money, but they were the only ones doing it.
Loans Canada was the first real brand in Canada offering personal loans back in 2012.
“Really understanding the consumer and directing them down the right avenue is the short and narrow of it.” — Scott Satov
By 2016, they had so much volume and were dealing with so many partners that they realized it was a conflict of interests to issue loans and refer people to other institutions.
So they partnered with Capital One, which allowed them to ease off of the lending portfolio and devote themselves to marketing and providing the best user experience.
The company consistently grew at a rapid pace as personal loans exploded onto the market.
Technology giving users control
The reason for this boom is fairly straightforward.
If you think back to the dark ages of personal loans — before 2012, that is — the only options for most people were payday loans.
Those were loans up to $1500 with interest rates as high as 500%, which essentially were the least user-friendly option available. And, unfortunately, the only option available.
Eventually, the Canadian government realized these loans were basically a license to abuse subprime people, while technology started offering people viable alternatives.
This explosion has been fueled by other technologies that have risen in tandem.
There are companies that, with your permission, can pull your bank data so lenders can see your full history.
Your credit score can be verified instantly — something only giant banks could do before — by smaller, more nimble technology.
Companies can get ahold of that data, which provides more information about the consumer. They can confirm a user’s identity, match them with a client and adjudicate them near-instantaneously.
“Now people actually have control of their credit and trade profile, which they never really had before. It really shows you how the market’s changed so dramatically.” — Scott Satov
All of this adds up to newer companies like Loans Canada being able to provide far superior loan services to users who are much more in control of their financial situation than at any other time in history.
The present and future of personal loans
Many are worried that this democratization of finance may be under threat with current economic concerns surrounding COVID-19, however.
Back in March, when the crisis first went into full-swing, this fear seemed poised to come true.
People were losing their jobs and searching for government assistance over lenders for funds. Demand for credit plummeted.
Pair this with lenders losing their lending appetites fearing defaults with their existing portfolios, and the situation looked rather grim.
But the worst-case scenario never came to fruition.
Defaults didn’t go through the roof as many had feared. And while demand for credit hasn’t fully bounced back, it is gradually ticking upwards.
Looking to the future of personal loans, Scott is cautiously optimistic.
Witnessing current trends, Scott has noticed an increase in consumers blending various financial products and expects that to continue into the future.
The havoc this crisis has caused has permanently changed consumers and their spending habits. And, of course, when consumers aren’t spending as much money as they were, their demand for credit goes down.
He believes the markets will bounce back, but it will likely take a really long time because of this.
“I definitely see the need for personal loans going forward.” — Scott Satov
But he still expects growth in the sector to continue.
Lenders are getting smarter about how they lend, while consumers are getting smarter about using credit opportunities available to them only when they are in a position to pay them back.
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Until next time!