Personal loans may be an untapped source of credit growth

John Kavanagh

Lenders are failing to capitalise on the appeal of personal loans in the current credit environment, according to an industry analyst.

The managing director of the banking industry research group RFi, Alan Shields, said fixed personal loan balances grew by 7.9 per cent in the 12 months to June, while credit card balances accruing interest grew by 0.12 per cent.

Shields said personal loans suited borrowers who were uncomfortable with revolving credit and wanted a loan that they could pay back over a term.

Shields, speaking at RFi's Australian Consumer Finance Forum, which was held in Sydney yesterday, said the personal loan market presented a good opportunity, but many lenders were ignoring it.

Shields said: "We have seen a shift to personal loans over the past 12 months, but the penetration in Australia is low. About one in 10 Australian consumers have a personal loan, which is low by international standards.

"We have also seen in our research that net promoter scores for personal loan products are higher than credit cards.

"A personal loan is a disciplined financial tool that suits the times."

Other speakers on the panel were not convinced. GE Capital's director of online personal lending, Kartik Natarajan, said consumers were looking for value and convenience.

GE has done good business with a recent addition to its card portfolio, GEM Visa, which offers six months interest-free with any purchase.

Bankwest's head of mortgages and payments, Andrew Banks, said a popular option was to borrow against equity in the mortgage for amounts up to about $20,000. Compared with this option, setting up a personal loan was less convenient.

Banks said Bankwest has been doing good business with its low-rate Breeze MasterCard.

MWE Consulting director Mike Ebstein said credit cards were still a popular payment option, even though balances were not growing. "I don't think personal loans will outstrip use of personal loans," he said.