Fintech is leading the growth in unsecured lending
Fintech companies have grown rapidly in the last 10 years with consumers today fully embracing the new technology. One area within the financial sector where Fintech companies have seen significant growth is within the unsecured lending industry. Historically, banks have been the main players in the space. But with Fintech companies streamlining the loan application process using sleek, intuitive user-interfaces, borrowers are choosing Fintech companies for their unsecured borrowing needs.
What are Unsecured Loans?
Unsecured loans are loans that don't require collateral or to be backed by property, like a house or a car (loans backed by property are secured loans). The establishment of credit rating bureaus opened the door for the possibility of unsecured lending as lenders began to use data to assess borrower risk profile as opposed to using collateral. Today, with advances in technology, financial theory and access to unprecedented amounts of financial data, lenders can underwrite personal loans quicker, cheaper and make the endeavor more financially viable.
Who are Fintechs?
Fintech is a term coined from combining the words financial and technology to describe companies that utilize new technologies to provide products and services to consumers within the financial sector. Fintech companies aim to compete with traditional financial providers across the banking, investment, payments and lending sectors.
How are Fintechs Changing the Face of Unsecured Lending?
In 2018, Fintechs issued 38% of the $138 billion in total U.S. consumer installment loan volume, according to an analysis by the Wall Street Journal. The numbers don't lie; fintech companies are playing a huge role in reshaping this market and reinventing how folks get their hands on much-needed cash.
Fintechs aren't just changing unsecured lending, they're changing the face of lending overall. As stated in this article from Fintech Finance, "Technological innovations have freed up previously unavailable capital for those in need, shifting the balance of power to consumers and away from banks." This is a huge victory as it gives folks without bank accounts a fair chance at getting credit which was previously denied due to their poor credit history.
This is the reason for Fintech's success and popularity in the unsecured lending market. Fintech companies have been able to cater to consumers who were previously unable to access financing from traditional banks because they had a poor credit history. This shift in power isn't just for the benefit of borrowers, but for lenders too as Fintechs are able to offer services at lower rates while being profitable.
How are they able to do this?
Fintechs have been able to bring costs down by automating manual processes, servicing customers through a digital platform, and reducing the need for intermediaries like banks or credit agencies.
As more people realize the potential of fintech unsecured lending, more borrowers will begin to move away from traditional banks. Overall, Fintechs are not just changing the face of unsecured lending, they're changing the global financial system as we know it and for that, we say thank you!
Unsecured loans are a great option for those who are not able to meet the criteria of a traditional loan. Moreover, it is easier than ever to get an unsecured loan as Fintech companies continue to improve their services. Only in 2018, 38% of the $138 Billion in consumer installment loans were issued by Fintech finance companies. The numbers say it all. And the future of the unsecured loan industry looks even brighter for borrowers as Fintechs continue to change the face of lending.
It has also become much more transparent as opposed to dealing with traditional banks who tend to be less forward in explaining requirements for loans and options available. All in all, the Fintech companies out there are making a big difference in the finance industry, not only by providing options to those with poor credit history but also as they push for more transparency and better services.