Competition intensifies as Goldman Sachs enters personal loan market

Alternatives to conventional lending from banks or credit unions have saturated the lending market over the past decade, with major players like SoFi, Lending Club and Prosper carving out the lion’s share of the new personal lending industry. These fintech startups offered a handful of advantages over traditional financial institutions, including ease and convenience of the application process, options for borrowers with less than ideal credit scores, and, in some cases, lower costs. lower loans. Consumers have embraced alternative financial companies largely because of the unique benefits offered, creating an opportunity for even more lenders to enter the space.

Recently, Goldman Sachs, a world famous investment company, introduced its version of online loans in October. the Goldman Sachs personal loan platform, known as Marcus, offers a wide range of personal loan options for qualified borrowers. Personal loans through Marcus can be taken out for up to $30,000, with repayment terms ranging from two to six years. Every loan taken out and funded through the Marcus platform is awarded a competitively priced interest rate, in line with other leading online lenders available in the market today.

Goldman Sachs is best known for its financial products and services made available to high net worth individuals. The company has spent its nearly 150-year history catering to a niche market of investors, without giving much credit to the retail side of the business. Now, with the launch of Marcus, Goldman Sachs is entering the consumer-focused personal finance arena in an effort to compete directly other fintech companies in the personal loan market.

What’s different about Marcus

Goldman Sachs’ Marcus should be a formidable opponent to the major lenders in the online market for a variety of reasons. First and foremost, the Marcus loans are funded from the reserve vaults of Goldman Sachs; as a bank, the company has a substantial amount held in its customers’ deposit accounts which it will use to fund its new personal loan offerings. The majority of market lenders currently available to consumers fund loans through crowds – outside investors who use their personal money to fund individual loan applications. Since Marcus loans are funded through Goldman deposit accounts, individual borrowers have a high chance of being approved for a loan as long as other underwriting criteria, such as credit score and income, are filled.

Another differentiator of Marcus loans is the fee structure for borrowers. Unlike alternative lenders, Marcus Loans offer no hidden or blatant fees for origination or financing, late payments or prepayment of a loan. A number of market lenders assess fees for each of these activities, making the total cost of borrowing more important than the interest cost alone. Marcus Loans also allow for tailored due dates and, like most other personal loan solutions, a fixed repayment amount due each month.

In addition to a no-fee model, personal loans offered through Goldman Sachs’ Marcus platform will feature fixed interest rates for the term of the loan. According to Goldman’s press release, Marcus loans will have interest rates ranging from 5.99% to 22.99%, depending on credit qualification and total amount borrowed. Competing lenders offer fixed and variable rate products to borrowers, but the maximum rate charged can be as high as 31%. Goldman Sachs representatives feel that this difference puts Marcus in a highly competitive position in the market.

Who is worthy of a Marcus Loan?

Currently, Marcus loans are heavily marketed as an alternative to high interest credit card options. Instead of paying over 20% on deferred credit card balances, Goldman Sachs offers a simplified way to pay off debt more cost-effectively. However, Marcus loans are only available by direct invitation from Goldman Sachs, although the company plans to open the platform to all borrowers in the near future.

The best suited borrower for a Marcus loan has the same characteristics as a qualified borrower for any other personal loan option. Individuals should have a good understanding of how a personal loan works, including its fixed monthly repayment and the total cost of borrowing over time. Likewise, personal loan borrowers are often required to have a strong credit history, score, and income level high enough to support a monthly loan repayment. If you’re considering using a Marcus loan or other personal loan to consolidate your credit card debt, you can also analyze your current spending habits to make sure you’re strong enough to keep new credit card purchases to a minimum. credit.

It will be interesting to see how Goldman Sachs takes on the consumer-driven market with the introduction of Marcus loans. All told, the platform appears to be a solid alternative to the personal loan options currently available to responsible and well-qualified borrowers.

Priscilla C. Carnegie