Online personal loans were easy to get for years. Now fintech upstarts want borrowers with higher incomes and above-average credit scores.
The man was struggling to pay his bills, and an online lender had offered him a personal loan to pay off some 10 credit cards. Accepting, he thought, would help him escape crushing debt. The interest rate offered, however, was about 10 percentage points higher than on his plastic.
Last quarter, the average personal loan in the United States went to a borrower with a 717 credit score, the highest average ever recorded, according to preliminary figures from credit-data provider PeerIQ. The typical borrower reported $100,000-plus in annual income, also a record.
Banks generally lend to borrowers with super-prime and prime-plus credit scores. That created an opportunity for new entrants to make money lending to households with prime and near-prime credit scores, said John Wirth, vice president of fintech strategy at TransUnion. These borrowers “were the sweet spot of the market,” he said. LendingClub’s borrowers were often in areas underserved by traditional banks, according to research by the Federal Reserve Bank of Philadelphia.
“I’ve been in hundreds and hundreds of meetings, and equity investors are screaming at businesses to take risk off the table,” said John Hecht, a Jefferies analyst who follows consumer lenders. For the publicly traded fintechs, such as LendingClub, “if you look at their stock price, they had no choice but to tighten.”Fintechs have raised prices on loans to customers with less-than-stellar credit and shut some out completely.
LendingClub isn’t alone: Competitor Prosper Marketplace Inc. told investors this month that its borrowers in 2019 have the highest credit scores and income, and lowest debt-to-income ratios, in at least six years.
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