The market for online personal lending products in the UK is growing rapidly, but borrowers still prefer face-to-face advice from high street branches, according to a report by market analyst Datamonitor.
The report claims that the market for online loans is being fuelled by the low interest rate environment and individuals seeking lower-cost loans. Changes proposed to the consumer credit act are likely to see a further increase in online personal lending, with electronic signatures removing the need to physically sign a loan application form.
The UK online personal lending market accounts for approximately 11% of total unsecured personal loans, with the majority of loans taken out for debt consolidation, car purchases and home improvements, says the analyst group.
According to Datamonitor's consumer survey, borrowers between the ages of 25 and 35 are most likely to purchase a loan online, especially if they have a young family.
Despite the growth in online personal lending, 55% of respondents identified face-to-face advice as their preferred channel for purchasing an unsecured personal loan, especially customers with less than perfect credit ratings. Datamonitor forecasts that in 2006, the branch will still account for 47 per cent of total unsecured personal lending.
However, the report maintains that the UK online personal lending market will grow quickly over the next few years.
Darren Oliver, Datamonitor financial services analyst and author of the report says: "Already in the first six months of 2002 some of the major online lenders have experienced over 100% growth in loan applications than in the same period for 2001."
He adds that by 2006, 18.1% of all unsecured personal loans will be made online. The catalyst for the growth will be lower interest rates compared to the high street and greater fulfilment by online lenders, with almost instant loan application decision available.
But it will be increasingly difficult to retain borrowers and lenders who can offer the lowest rates coupled with the most efficient online systems and processes will ultimately be successful, says Oliver.
Changes to consumer credit regulations will boost the growth of online personal lending. Despite the growth in borrowers making applications over the Internet, it is still not possible to complete a loan transaction without the lender receiving a written signature and proof of identity. The introduction of online credit agreements with electronic signatures in 2003 will help facilitate further growth in the online personal loans market, making the loan application process more convenient for borrowers and more effiecient for lenders.