Unsecured Loans: The History & Future
Unsecured loans have a captivating history in the UK, stretching back to the early 20th century when loan companies emerged to provide small loans to individuals who struggled to access credit through traditional means. These loans came with higher interest rates to manage the associated risks, although one major benefit is that there is no collateral needed.
Following World War II, the UK economy, thanks to its victory, flourished. This also meant that the availability of unsecured loans grew. During the 1960s and 1970s, conventional financial institutions like banks and building societies were aware of the expanding need for personal loans. These personal loans may be used for lots of different purposes, such amazing holidays, car purchases, and home improvements! During this time, the credit card business also began to take off, revolutionising consumer credit by doing away with the requirement for collateral. This gave people more freedom and ease when it came to obtaining money.
The 1980s witnessed an unsecured lending boom; lenders were catering to customers with every kind of credit rating. Specialist loan providers also emerged, serving individuals with poor credit histories, albeit with slightly higher interest rates and much stricter repayment terms.
The increased dependency on the internet some 10 – 20 years later saw an influx of online lenders emerge and became key players in the industry. These lenders were able to provide loans with more flexible repayment terms and cheaper interest rates than traditional lenders. However, the 2008 financial crisis did have a long-lasting impact on unsecured lending practises. Lenders had to be more cautious, rethink their lending strategies, and put tougher controls in place as a result of the economic slump and increased risk in order to survive the difficult economic environment.
Despite the market collapse, the unsecured lending market remains a vital component of the UK’s financial framework. Today, the market is on a path to recovery, with lenders engaged in fierce competition, vying to offer borrowers enticing rates and favourable terms. Technological advancements, such as artificial intelligence and machine learning, are also reshaping the industry by enabling real-time credit analysis and expedited lending decisions.
Glimpsing into the future, at Rosewood Finance we think that there are several noteworthy trends that will shape the unsecured loans landscape in the UK. Digital lending platforms will continue to ascend, empowering borrowers to apply for loans seamlessly through streamlined online processes. Personalisation is also set to play a prominent role, with lenders tailoring loan options based on individual credit scores and financial histories, offering the customer greater flexibility when it comes to terms and repayment options.
Beyond traditional credit scores, alternative data will become significant when it comes to assessing creditworthiness. Lenders will delve into diverse data points such as social media activity, spending habits and even GPS location data. Lenders will be able to fully comprehend borrowers thanks to all of these data pieces. Due to their lower credit scores, borrowers who would not have been eligible for loans in the past are now allowed to apply for them thanks to this strategy.
Regulations for open banking will also make it simpler to obtain financial data about customers, speeding up the loan approval process and improving the client experience.