Next-Level Lending:
Maximising convenience with personal loan applications for today's borrowers
Part 2: Check my rate
November, 2023
Author: George Kelly, Consultant & Digital Transformation Specialist
Consumer lending products such as credit cards, overdrafts and buy now pay later (BNPL) generally offer transparent pricing models with the customer aware of the interest they will be paying before making an application. When it comes to consumer loans, particularly in less regulated markets, pricing models can be far more unclear. Consumers can be left guessing which interest rate they might be offered on a loan, knowing only a representative rate or the minimum and maximum rate offered by a particular lender, before making an application. This benefits incumbent banks and established retailers with customers more likely to approach them for a loan based on an existing relationship, rather than the promise of a more affordable product.
In a fiscal landscape of rising interest rates and falling real wages, the demand for price certainty is on the rise and some of the most innovative personal lending providers are meeting this demand by offering an online loan eligibility tool, generating a personalised loan interest rate quote for prospective customers in real time. The form, often marketed with a "Check my rate" button is placed on a lender’s website, takes 5 minutes or less for customers to complete and includes consent to a soft credit check. Personal lending providers use information pulled from a customer’s credit file, the desired loan amount, loan purpose and limited personal details to assess their creditworthiness. This allows the providers to determine if the customer is eligible for a loan in a matter of minutes, as well as providing them with an accurate quote using automated back-end tech. This enables the lending provider to onboard new customers without using significant resources, ultimately allowing them to be more price competitive.
Other benefits to providing customers with the price of a personal loan upfront, rather than after the application is completed, include:
1. Improving conversion through eliminating the expectation of a potential adverse impact on the credit score that comes with a hard credit check.
Providing customers with the price quote based on the soft check can encourage them to fully complete the online loan application. The prospect of a customer being offered an unaffordable price and left with nothing but a 'hard check' on their credit file, potentially impacting a hard-earned credit score, may deter them from completing an application in the first instance.
2. Flexibility and increased engagement with the product.
With some of the most forward-thinking lending providers, once a prospect receives their no obligation interest rate quote, eligible customers are able to make changes to the loan term and amount using a dynamic loan calculator. This allows them to see how changes to terms can impact repayments. As customers have a much clearer idea of the costs, they may be encouraged to borrow more and over a longer period.
3. Lenders can screen out customers who might not be suitable candidates for credit at the time of application at speed.
An automated quick-quote facility allows a lending provider to focus on specific customer segments based on the information available to them, which typically includes highly relevant credit assessment criteria such as credit scores and home-ownership status, saving resources on processing full loan applications. This approach allows the providers to easily change eligibility criteria, and opens doors to partnership opportunities by directing ineligible customers to other lenders that may be willing to lend to different customer segments.
Markets where this feature is commonplace among fin-techs already exist, and personal lending providers in less developed regions could gain significant advantage if they are among the first to make the investment into real-time automated pricing.
When it comes to customer experience, an area in personal lending where customers are often left wanting more, even in the most technologically developed markets, is mobile optimisation. Consumers today are very well adjusted to managing their finances on their phones, whether that be with everyday banking, or managing a complex investment portfolio. However, very few lending providers are extending these mobile advancements to the application and product management of personal lending products such as term loans. Part 3 will focus on what lending providers can do to better meet customer expectations regarding mobile applications and product management.