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Three Ways Lenders Are Getting Creative With Unsecured Personal Loans

[Sep 16, 2009.]


Unsecured personal loans have been around since the days of the caveman, when one caveman asked to borrow another caveman's club "on credit." Or maybe that's not exactly how it happened. What is undeniably happening today, though, with unsecured personal loans, is that lenders are getting creative.

Here are three ways that lenders are getting creative with unsecured personal loans:

1. Lenders Increasing Transparency

The primary form of unsecured personal loans offered to consumers has been, over the past decades, credit cards. Recently, the credit card companies have been assaulted by an epidemic of bad PR, with Congressmen routinely abusing credit card companies on television, in print, and online.

Meanwhile, credit card lenders have been getting crushed by non-repayment of the unsecured personal loans they've already made. Bank of America is suffering especially from unpaid credit card bills.

Something has to change, not only for consumers but for lenders. From the unsecured personal lender perspective, the thing that is changing is how credit card companies convey information to their customers.

As illustrated by new credit card products like Blueprint from Chase, which encourages customers to pay more than the minimum payments to save on interest, a new era of transparency may be beginning when it comes to personal loans.

It will be interesting to see how long this new era lasts.

2. Credit Score Not the Only Way to Measure Risk

With bankruptcies soaring and foreclosures all over the place, it is not unusual for a lender to come across someone who needs an unsecured personal loan and will probably pay it back, but has an absolutely awful credit score.

Financial profiling, the practice of categorizing borrowers according to where they shop, is not a popular practice. But it does show that lenders are going beyond the credit score number to evaluate credit risk.

3. Social Lending No Longer Such a Crazy Idea

Rebuild.org has been on the ball alerting readers to the impact of social lending on the unsecured personal loan market. Indeed, the social lending phenomenon has continued to grow.

Social lending, so far, happens mostly when people lend to people on a one-to-one basis through Web sites like LendingClub.com and Prosper.com. The interest rates on such sites often beat unsecured personal loan rates from banks, and many borrowers enjoy the personalized experience.

Banks and other more "mainstream" lenders are closely watching the social lending movement. Expect to see mainstream lenders implement aspects of social lending in their own unsecured personal loan operations in the coming years.


About Author:

Andrew Freiburghouse is a writer and businessman. He has worked as a magazine reporter, tax preparer, screenwriter, copywriter, and loan officer. He graduated from Santa Clara University in 1999 with a B.A. in English. Andrew was born and raised in the City of Los Angeles.

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