38% of vulnerable consumers have used a personal loan: JD Power survey
JD Power announced the results of its 2022 US consumer loan survey last week. The survey found that 38% of vulnerable consumers – defined as consumers who struggle to make necessary payments, such as bills – have turned to personal loans to manage their debt.
Additionally, 47% of consumers said an advertisement prompted them to get a personal loan, and 61% said they would use their lender again. According to JD Power, the top three reasons consumers have used a personal loan are: debt consolidation, lower interest rates and lower monthly payments.
The study was based on responses from 5,269 personal loan customers and was conducted from January to March 2022. It focused on four main components: the application process, loan management, purchases and terms loan. The top three lenders in terms of customer satisfaction were Marcus by Goldmen Sachs, followed by US Bank and American Express.
If a consumer is struggling with credit card debt, personal loans offer an opportunity to consolidate debt and get better terms. Personal loans have lower interest rates than credit cards, so they can help consumers save money on interest charges when paying off the loan.
“If someone has a lot of credit card debt, a personal loan makes sense. It might not be the best rate, but…if you’re paying 30%, 35% [annual percentage rate] on a credit card and you can lower it to 15%, it’s still not the best but it’s better,” said Craig Martin, managing director and global head of wealth and loan intelligence at JD Power. ZDNet.
Many lenders had stopped lending at the start of the pandemic. But as consumers face increased financial stress and some of the unknowns lenders faced at the start of the pandemic have cleared up, lenders are offering more loans.
“[Lenders’] afraid of what would happen in terms of credit exposure [at the start of the pandemic] – there were a lot of unknowns. So they were stopping their loans completely, and I think it’s clear that a lot of the negative scenarios didn’t materialize… Now we have a new set of unknowns coming, but I think it’s an environment more manageable” says Martine.
JD Power found that competitive rates, easy access, and greater options led to an increase in personal loans. Another reason personal loans have grown is that younger generations are less interested in credit cards.
“Consumers, especially younger consumers, have started to turn away from some of the other debt products that are out there, like credit cards, which are often designed as a double-edged sword. They can be very helpful and give you access to things like a line of credit, but there are a lot of negatives that come with that. And I think a fixed personal loan can be easier,” Martin said.
Consumers should consider a number of factors when considering any financial product. For example, interest rates. The Federal Reserve voted to raise federal interest rates in early May to fight inflation. And with inflation still well above the 2% target, further increases could occur.
With the rising cost of living, many are wondering if personal loans are a viable choice to make ends meet. As long as consumers use financial products responsibly, Martin said, they’re still a good tool to use.
“As the interest rate goes up, that’s actually going to make personal loans more attractive. Think about the heart of what a personal loan is for; according to our respondents, it is to consolidate debt and pay things back. So if inflation rises, people seek to make better financial decisions. People who are struggling financially — this will be a product that will be needed,” he said.
An important aspect of any financial product is having the financial literacy to use it best. It is becoming increasingly important for lenders and financial institutions to support the financial literacy of their customers. JD Power has found in other studies that when a customer feels better supported by their lender, they experience greater satisfaction and loyalty.
Also: Direct or digital banks at the top of customer satisfaction: JD Power study
“We find that a lot of these companies overlap with financial education – [concepts like] “how do you budget, how do you make good choices, how do you earn credit” — so they can lower the interest rates they get in the future,” Martin said.
“I think organizations are moving from a product-centric approach to a consumer-centric approach. It’s not just about how [the product] meets the client’s needs, but how it resolves long-term systemic issues the client may be experiencing to help them improve their position is also key. »
Another key finding of the study is the role advertising plays in a consumer’s decision to apply for a loan. According to the survey, 47% of consumers said an ad made them consider applying.
If what a consumer expects when applying for a loan matches the information provided to them about the financial product, they are likely to experience higher levels of satisfaction. According to JD Power, a big part of customer satisfaction lies in managing consumer expectations, company communication, and the ease and speed of the application process.
“A lot of what’s important to a good experience happens after you get their attention,” Martin said. “It’s about finding the right balance between what customers think they’ll get and what they’ll actually get.”
Once a business has captured a consumer’s attention, it’s critical that it delivers on its promise. Is it an easy approval process? Did the company properly communicate the terms of the loan? Once the consumer is approved, is it easy for them to get help if they have problems or questions?
“A lot of it is about communication. When we talk about customer experience, expectations match experience. So if I expect a lot and get very little, I’m really unhappy, and vice versa “, said Martin.