Online Loans Get Lots of Hits
Jane J. Kim
Oct 21, 2006
After focusing on offering high-yield online-savings accounts as a way to attract deposits, financial institutions are offering more online loans, giving borrowers access to lower-cost options.
Citigroup Inc.'s Citibank Direct, the online-banking division that launched a high-yield online savings account earlier this year, is expected to roll out a new online-lending center this weekend that will feature lower rates on various types of loans, including home and student loans along with personal lines of credit.
The Web site will consolidate all of the bank's loans -- which, for now, will feature the same rates offered elsewhere in the bank -- although the company plans to offer lower Internet-only rates on many of those loans later this year, says Steve Kietz , president of Citibank Direct.
Other companies are expanding their online-loan offerings. Next month, E-Loan Inc., an online lender owned by the Puerto Rican banking company Popular Inc., will offer personal lines of credit, with rates ranging from 7.99% to 19.99%. Since such loans come with limits up to $25,000, they are largely aimed at consumers looking to make purchases they consider too big to charge on a credit card yet too small to warrant drawing on a home-equity line of credit, says Mark Lefanowicz , president of E-Loan.
ING Groep NV's ING Direct, its direct-banking unit that already offers savings accounts and home loans online, is looking at offering an unsecured loan next year with rates that are likely to be 1.5 percentage points to two percentage points lower than rates on comparable alternatives, namely high-interest credit cards, says Bill Higgins , head of lending services for ING Direct.
With more people using the Internet to compare prices, pay bills and manage their finances, the online-loan market is a potentially lucrative revenue source for banks. The percentage of U.S. consumers who took out loans over the Internet is estimated to have increased to 26% of new loans in 2005 from 12% of new loans in 2002, according to a 2003 report from Celent LLC, a research and consulting firm.
For consumers, the online loans are an alternative to higher-rate credit cards or personal lines of credit offered by brick-and-mortar banks. The average personal loan is now 14.51%, while the average variable credit-card rate is 14.08%, according to Bankrate.com. Some of the best rates online, however, are typically available only to consumers with strong credit scores.
Another appealing aspect of borrowing online is the faster approval time. Citibank's online lending center will offer instant approvals on student loans and home-equity lines of credit. That instant-approval process will be expanded to personal loans and overdraft protection early next year, says Mr. Kietz. E-Loan says it plans to electronically transfer money into a borrower's checking account the same day he or she applies for the loan or send a check to the borrower the next day.
Consumers don't have to rely on big banks for loan options. Prosper.com, run by Prosper Marketplace Inc. of San Francisco, allows borrowers and people who want to lend to them to find each other through postings on the Web site. Aaron Wolfson , a New Orleans resident who recently got a $15,000 three-year loan through Prosper.com to help start a kitchen-designing business, estimates the entire process -- from the time he applied for the loan to the time the money was in his checking account -- took about 10 days.
Visit WSJ.com now for additional insight on the most important stories of the day.
Related Stories
Why a No-Interest Bargain Can Be a No-No
by Jaclyne Badal
Your House Is Not a Retirement Plan
by Amy Hoak
'Good' Credit-Card Debt
by Aleksandra Todorova
Lenders Sweeten Home-Equity Deals
by Ruth Simon
Banks Sweeten Home-Equity Offers
by Ruth Simon
Top FiDeals
