Rise in personal loans dominated by peer to peer lending

Online marketplace lenders dominated personal loan applications during December 2016 quarter. The recent Veda credit agency report shows that the personal loan application numbers for this period were about 12.4 percent more compared to December 2015 quarter. The figures were taken from the most recent Quarterly Consumer Credit Demand Index.

Growth of personal loans

According to Angus Luffman of Veda, the personal loan application growth is mostly from products that are provided by a number of new entrants in personal lending space. This is beyond the standard auto-finance and credit card markets. Luffman overlooks consumer risk inVeda. He refers to the new online marketplaces which provides steeper interest rates to investors compared to what the latter can get from traditional lenders like banks. A large number of this new category of lenders is what is termed as a P2P or peer to peer lenders.

According to Luffman, the P2P lenders are a new phenomenon and there is still no clear definition of the term and of those who do this activity. The only common factor is that all such lenders have a substantial digital presence. They are focused on providing the customer excellent experience.

Risk pricing

The P2P lenders utilize risk centric pricing. This involves borrowers enjoying higher credit scores paying a lower rate of interest compared to borrowers having lower credit scores. Only personal loans are provided. They can be compared to the traditional lenders, for example banks, where every person making an application for a personal loan and considered to be an acceptable risk pays an equal interest rate. The investors inform the peer-to-peer lenders the amount of money they prefer to invest. They also inform the length of time of lending money and also the preferred interest rate. A bidding process which links borrowers with the investor lenders may happen. It is to be noted that although these new kinds of lenders offer money with steeper interest rates, the P2P lenders does not come under the purview of government guarantee on the initial $250,000 on the deposits with a credit union or bank.

There was a considerable rise in personal loan applications growth all over Australia. The Northern Territory and NSW led with a rise of anout 14.5 percent. Queensland was 13.1 percent. Victoria enjoyed a 12.5 percent increase in the growth rate. An upside of 7.7 percent was observed in consumer credit applications. Mortgage applications went up by 6.6 percent and credit card by three percent.

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