Unsecured Personal Loan Market: Number of Lending Sources Growing?

[Jun 11, 2009.]

 

For a borrower seeking an unsecured personal loan, having an established relationship with a bank can be a very positive thing. The interest rates on personal loans offered by banks to their own customers are among the best in the personal loan business.

However, borrowers without bank connections have options, too. More options, in fact, than they've ever had, probably, at least in terms of lending sources.

Indeed, borrowers who are aware of the growing trend of non-bank lenders may find themselves ahead of the game when it comes to securing an unsecured personal loan.

Insurance Companies Have Made Risk Assessment Into a Science

The Information Age has obviously made a tremendous impact on the credit markets, for good and, well, not so good. Famous investor Warren Buffett, for example, called the derivatives products known as "credit default swaps" by the name "weapons of financial mass destruction."

And in fact they did blow up on their creators. The giant insurance company AIG, of course, was the most glaring example of a piece of earth scorched by these hard-to-understand products.

AIG, as a company, certainly made some terrible decisions in the recent past. AIG also created some of the most complex risk assessment systems ever known to man.

Today, those risk assessment systems are much in use at AIG subsidiary American General, which makes unsecured personal loans, usually between $2,000 and $5,000 and often with reasonable interest rates.

Other insurance companies, armed with similarly powerful risk assessent tools, are similarly involved or becoming involved in making personal loans to consumers, or lending to other companies who make personal loans to consumers.

Personal Loans, Peer-to-Peer Style, Plus Increased Microlending by Non-Profits


Some people may view it as a sad statement on the American financial system when people trust total strangers more than they trust banks, but some people may just want unsecured personal loans, so if they're available from total strangers, so be it.

And such unsecured personal loans are available today, on the Internet, on sites like LendingClub.com. P2P lending, as a practice, is not mainstream, but it's no longer viewed as completely bizzare. As the younger generation begins to use credit, P2P lending may become a big deal.

Meanwhile, the so-called "microlending" movement continues to gain steam. Pioneered by financial innovator Mohammed Yunus in the 1970s, microlending entails small personal loan being extended to unbanked individuals, or individuals without traditionally verifiable income.

Microlending, like P2P lending, may still be more PR hype than reality. At the same time, the impact of these new, unconventional sources of unsecured personal loans should not be underestimated.

 

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.