The personal loan market is booming with an estimated $141 billion in loans made in 2018 and a 40 percent rise in the number of loans over the last four years, according to J.D. Power. Just what does this boom mean for housing finance? Well, it could take a bite out of home equity lines of credit (HELOCs).
Customers are seemingly more satisfied with their personal loans than their HELOCs, according to results from the J.D. Power 2019 Personal Loan Satisfaction Study. On a 1,000-point satisfaction scale, customers rated personal loan providers with a score of 853 compared to a score of 834 in J.D. Power’s 2019 Home Equity Line of Credit Satisfaction Survey.
Not only does a lower score translate to fewer customer referrals, but also J.D. Power found that customers “will consider alternative products,” meaning when shopping for a personal loan, some customers also consider other types of loans, such as HELOCs.
About 47 percent of personal loan shoppers reported considering other types of loans, with 28 percent contemplating credit cards, 17 percent pondering personal lines of credit, and 13 percent considering HELOCs.
As for what’s earning personal and alternative lenders high customer satisfaction, the answer, according to J.D. Power lies in the digital realm.
“[M]any of these alternative lenders are upping the ante on customer satisfaction by outperforming lenders that provide more traditional types, such as home equity lines of credit (HELOC), through superior digital experiences and lightning-fast approvals,” J.D. Power stated with the release of its 2019 Personal Loan Satisfaction Study.
A majority of personal loan applicants applied digitally with 40 percent applying entirely online, and J.D. Power found that satisfaction was even higher among these customers. Those who applied online rated their personal loan experience 886 compared to the overall 853 for all personal loans.
“From a digital perspective, traditional banks need to work hard to meet evolving customer expectations,” said John Cabell, Wealth and Lending Intelligence Practice Lead at J.D. Power.
Those who applied for loans digitally also reported a high rate of understanding of their loan application with 91 percent of applicants saying they “completely understood the application.” Understanding the application correlated with a 137-point higher satisfaction rating, according to J.D. Power.
Timeliness also, naturally, makes a difference to customers. Those who receive loan approval within two days of completing their application tend to rate their satisfaction about 55 points higher than those whose approval takes longer. Those who receive their funds within two days of approval give satisfaction scores about 50 points higher than others.
HELOC loans generally don’t come close to these timelines. The average HELOC customer receives funds within 26 days of completing their application.