Traditional banking has fundamentally changed since the days of the financial crisis. The industry has been through a flurry of new regulations and intensive restructuring. All these efforts have made banking safer, but they’ve made big lenders more risk-averse. Coincidentally, this lower risk tolerance comes at a time when interest rates are at historic lows.
Much of the credit boom has been driven by younger borrowers. Millennials seem willing to apply for loans online and get quick access to funds. CashStop, a provider of fast cash loans, has seen this particular trend within its own business. Most borrowers looking for cash loans will apply online and will usually be professionals aged between 18 and 29. It’s not the convenience of quick cash and fast approvals, but the ability to consolidate debts that has driven younger borrowers to seek out cash loans.
New startups, backed by technology, are also trying to fill in the gaps. Disruption in the financial industry is now more certain than ever. Crowdfunding, peer-to-peer lending, and the blockchain are changing the way many people think about money. Now this disruption seems to be seeping into the more traditional functions of banking.
The cash loan market is the best example. Personal loans have grown by 18% from 2013. Advances in technology and historically low interest rates have contributed to the boom, but the real reason for growth in this market is the low savings rate. Banks seem unwilling to lend to small businesses or individuals without adequate collateral. Smaller financial companies have stepped up their lending to fill the void. Personal loans, in particular, have grown rapidly. These cash loans are cheaper than borrowing from a credit card or dipping into an overdraft. While the average interest rate on a credit card could be 15%, personal loans range from 5.5% to 11.5%, depending on the borrower’s credit rating.
According to Bankrate.com, 24 million Americans are expected to apply for a cash loan this year. The savings rate is so low most people have no option but to borrow because they haven’t saved enough for emergency expenses. A study found that nearly 63% of Americans didn’t have enough of money saved up to meet a sudden $500 expense.
As big banks and large financial institutions become more regulated, their purse strings get tighter. Young borrowers and companies have gradually turned to FinTech startups that fill the gap. New lenders are seemingly driving demand for traditional banking products like personal cash loans.
