It’s not uncommon for financial needs to change across generations, especially as each group attempts to learn from the past. When it comes to millennial spending habits, it looks as though they’re rounding a corner to a new kind of credit. With the vast treasure trove of accumulated data available, credit bureaus like TransUnion are seeing spikes in personal loans compared to Generation X’s spending habits in the early 2000s. It’s a tremendous opportunity for marketers to capture a demographic that expects more from their lender. Find out what’s driving changes among 21 – 34 year olds so you can have a better idea of how to capitalize.
The Overarching Trends
The newly minted adults of Generation Z are at the very beginning of their financial journey, but millennials are at the age where they’re expected to make major purchases. As they struggle with the economy and student debt, they’re making different financial choices along the way. Their preferences are shaped both by their financial history as well as their thirst for digital options that offer the convenience and immediacy they’ve become accustomed to. Lenders are responding to this fresh take on money management by pushing new products, but it’s clear their success will be rooted in understanding what’s really motivating millennials.
Adopting New Technology
Lenders are turning to financial technology (fintech) to help peddle their products, which millennials are all too happy to use. Ironically, applying for a personal loan without the face-to-face connection can be far more attractive than the traditional application process. Not only does the technology provide a faster transfer of funds, it’s also completely devoid of judgment. There’s less anxiety about filling out a form on a website than there is walking into a bank to ask for a loan. In the event of a decline, the applicant can digest the news on their own and regroup without the added stress of having to handle a rejection in person.
A Decline in Credit Card Usage
Right or wrong, credit cards have long been linked to perpetual debt in many people’s minds. In 2009, the CARD Act was introduced to place stricter limits on the marketing of credit cards at college campuses. Debit cards have become more of the rule as opposed to the exception, leaping from 8 billion transactions in 2000 to 60 billion in 2015. This may partially explain why millennials are opting to carry less plastic in their wallets than their predecessors. Instead of spreading debt out over several credit cards, they’re concentrating their borrowing into auto and personal loans.
The younger generation’s demand for personal loans has grown at such a fast clip that even the most old-fashioned lender would give pause. The highest demand for loans typically comes between the ages of 40 – 50. This is a pivotal decade where consumers reach peak earnings in their financial lives. With millennials, lenders have a prime opportunity to start developing strong relationships now so they’re more likely to remain loyal to the same institution as they continue to build their assets. And while it may seem counterintuitive to old-school marketers, it is possible and worthwhile to develop brand loyalty providing personal loans online (even if it may take more effort.)
Better Marketing Strategies
To really drive at the heart of what millennials are looking for, lenders have to be prepared to accept their way of life. A personal loan through an online organization gives them fast answers without having to make countless phone calls or explain their situation three times to three different lenders. They’re searching Google to find a lender with clear terms and straightforward explanations, but few lenders seem ready to meet their demand.
Companies with a fundamental understanding of millennials’ wishes, like ThinkWallet, are driving for seamless online experiences. Not only is the whole application process online, but the underwriting and fulfillment are as well. They’re offering mobile tools to expedite loan approval and giving applicants the power to manage their loan right from their smartphone. In certain cases, it may take just a few days from application to cash, which is an extremely appealing option to someone who may have procrastinated applying.
A Generation Without Collateral
Another point that makes personal loans so attractive is that it doesn’t always require collateral from the applicant. Not only does collateral mean extra effort on the part of the applicant, it may not even be a realistic option to begin with. Many millennials are making their first major purchases from small personal loans, which means they may not have an asset to use as collateral. In return for their lack of wealth, millennials are willing to pay extra interest rates in an effort to secure the loan.
A Tool for Improving Credit
Finally, personal loans give millennials a chance to diversify their credit in an effort to build better financial health. Personal loans give them a chance to transfer high-interest debt to a lower interest personal loan. Consolidating their debt and making timely payments has a chance to increase their credit score while saving them money over time. Plus, personal loans can be paid off on a regular schedule over the course of several years. This not only helps the debtor to plan their financials, it also gives a clear light at the end of the tunnel. In addition, there are typically no penalties for paying the loan off early!
Once marketers understand the priorities of a millennial, they can start making it easier for them to see the benefits of choosing their brand over the direct competition. This creates a win-win for millennials and lenders as we move into an increasingly digital world.