How do I get an online loan?

The internet has truly opened up the world of personal finance for the consumer. An increasing number of people will arrange a loan online instead of going to their bank branch. This allows them to take advantage of 24-hour accessibility, increased choice, easier comparison, and the reduction in the cost of loans caused by the concurrent reduction in costs for the lender of administrating an online loan.

Online loans will not take over the industry though. Many people still desire face-to-face advice for when they need to borrow money, so branch-based lending will not disappear and will continue to dominate. So, whilst Datamonitor, a market analyst, says that online loan sales now constitute 11% of the market, they predict that online loans will increase to 18% of the market by 2006, and branch lending will be 47%.

The reason why people choose to arrange loans online varies between the lower interest rates mentioned above, but also the speed of loan fulfilment, which sees loan application decisions available almost instantly. Low interest rates are not the only factor. Lenders need to have the most efficient online processes and systems to be successful in attracting online customers.

The industry will also be changed by the expected alterations to consumer credit regulations that are expected in 2003, which will allow people to take out a loan using electronic signatures. Currently, you have to fill out an application, which is then sent to you by the lender for you to sign. So the whole process cannot be completed yet over the internet.

Online lending will not take off unless customers become more discerning with the loans that they take out. At the moment, market analysts feel that customers see loans as a means to an end, so were not that bothered by the interest rate that they paid, making it more difficult for them to be tempted away by the online lenders.

So, lenders need to target a certain type of borrower carefully in order to be successful. Datamonitor say that borrowers can be provided into three groups - all demanding different strategies.

Price chasers have good credit histories and thus are able to look for the best interest rate and use that to decide on a lender. At the moment, online lenders have been targeting these aggressively. But these borrowers are not easy to retain.

Non-standard borrowers are those borrowers with a bad credit history. Loans to these customers are high risk, but also offer a higher return, as lenders can charge them higher interest rates.

Then there are lazy price takers who prefer to use their existing banks. These are the largest market, but it may not be worth the effort it would take at the moment to attract them.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2008

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