As more consumers rely on personal loans and other lending products to support them through the COVID-19 pandemic, new trends are developing in the industry. Understanding how to assist borrowers helps lenders meet consumer needs and stay competitive in the lending marketplace. For the savvy lending professional, here are six consumer lending trends defining the industry in 2021.
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Fewer auto loans
As so many automakers struggle to access computer chips for their new vehicles, the need for auto loans has diminished. Unfortunately, this trend was accompanied by another one: fewer borrowers making regular auto loan payments.
Auto loans remain a beneficial program for lenders, but to increase consumer financing, many lenders are offering financing deals for used cars as well as new ones. Consumers who have kept strong credit scores can benefit from 0% interest rates on new vehicles and other enticing offerings from automakers and national lenders.
Turning to loan-management software
The pandemic is still going strong, making 2021 a year spent online. With SaaS loan servicing software from providers like LoanPro, lenders can stay connected to their borrowers without the need for face-to-face meetings.
Loan servicing software automates servicing and collection, freeing up lenders to spend more time on valuable leads. Considering the reduced labor costs and ease of consumer access, it’s easy to see why many leading industry professionals are making the switch to software.
Finding low-risk borrowers
The COVID-19 pandemic accompanied a recession, meaning that many lenders saw rising delinquencies starting in 2020 and continuing into this year. Lenders are enticing low-risk borrowers by offering reduced interest rates on credit cards or other closed-end loan products to keep business moving.
The most notable delinquencies were in home equity loans and home improvement loans. Experts predict that these delinquency rates will continue, but lenders are working to recoup their losses by seeking low-risk borrowers, especially those who buy new cars with auto loans.
To make loan programs easier for qualified buyers, lenders are turning to online application forms. These forms immediately reject unqualified buyers, and they give qualified buyers a quick way to take out new loans with minimal effort. In the lending industry, 2021 looks like the year of the risk-averse bear.
Opening backup credit cards
Consumers with good credit are still applying for and receiving credit cards. Originations are up, but consumers aren’t using their new cards. The balances remain low, as many borrowers remain hesitant to spend in the volatile economy. But, as the job market continues to rebound, lenders expect consumers will begin charging big-ticket items again.
Expecting a recovery in 2021
Before the pandemic, lenders saw record levels from borrowers. As the calendar moves through 2021, lenders are expecting borrowers to return to pre-pandemic borrowing. Lenders are also expecting forbearances to continue, but not at record-setting levels. Though the delta variant introduces some uncertainty into these predictions, many industry experts remain optimistic.
Offering new products in the lending marketplace
Lenders that want to grow their bottom lines are seeing success with new products. Offering savings and lending products through atypical institutions represents a significant change for the marketplace. For example, some lenders offer loans to Amazon merchants who struggle to secure loans through traditional banks.
Online financial institutions are also getting creative with their offerings. Rather than paying for brick-and-mortar buildings, they’re paying benefits to their online customers. With online savings accounts and no-fee personal loans, consumers are finding ways to save money on banking products at alternative financial institutions.
The COVID-19 pandemic has changed the economy, but lenders shouldn’t worry much longer as the job market continues to grow. Successful leaders are finding new ways to entice low-risk borrowers by offering affordable interest rates and unique credit products.