New Trends in Non-Traditional Personal Loans
As the financial crisis has deepened, traditional financial institutions have severely cut back on granting personal loans to average consumers. As a result of this belt-tightening, banks have opened up the field of personal credit lines to non-traditional institutions. Their loss is the non-traditional banking institution’s gain, and indeed, alternative methods of personal lending have thrived through the recession. A case in point is Sterling Bank of Asia, a thrift banking unit of JTKC Group, which has plans to increase by more than forty percent this year. How does Sterling expect to achieve such miraculous growth in the midst of a worldwide recession?
Sterling Bank is targeting one group that has been completely disenfranchised by traditional bank cutbacks in personal loans: women. The bank has created the “W” loan and is aggressively marketing it to women, a group who are better than average borrowers, according to the bank. Each personal loan averages around P10, 000 with a maximum of P50, 000–a lower than usual rate, with an 18-month payoff schedule. Based on this personal loan product alone, Sterling Bank expects its consumer lending to grow by 43%. The majority of these personal loans are being used to finance new or used vehicles.
Why Alternative Lending Is Gaining Ground
The recession has made it difficult for anyone, even consumers with stellar credit, to receive a personal line of credit. Because banks and other traditional lending institutions are cutting back on consumer lending, the field has been left wide open for alternative lenders. These savvy lenders are also targeting disenfranchised groups who may have had trouble getting a personal loan even before the recession. In the United States, peer-to-peer lending has gained considerable ground and cash advances continue to prosper. These alternative lenders are making it possible for consumers to borrow needed cash even in the midst of the global recession.
Are Alternative Measures Good for the Economy?
While traditional financial institutions may disagree, once could make the argument that alternative lending is good for the economy. By gaining a personal line of credit from a nontraditional source, a consumer is putting more cash out into circulation. This cash can be used to finance a used car purchase, consolidate debt, or pay off past due bills–all things that are good for a consumer’s personal bottom line and which help keep people employed during the recession. A few banks such as Sterling in Asia have recognized the untapped potential for consumer lending and are using it to aggressively grow their company. It’s definitely a lesson that some other traditional banks might want to heed.