Alternative Lending in Canada 2018 – Consumer Insights

Insights for Consumers

Canadians are warming up to alternative lending options in recent years, with more turning to online vendors for services ranging from mortgages and car loans to business and equipment loans, according to the State of Alternative Lending in Canada 2018 study published by Smarter Loans.

 

The study, which was published on December 11, 2018 demonstrates how interest in alternative financing options has been increasingly steadily in recent years, with 54% of respondents submitting their first loan application with an alternative lender within the last three years alone. Furthermore, nearly a quarter of those surveyed sought their first loan with an alternative lender in just the past 12 months.  

 

Generally speaking, Canadians have been satisfied with the products and services they’ve received. Of the more than 1000 respondents 75% confirmed they got the loan they were looking for through an online vendor, 86% indicated that they were either “satisfied” or “very satisfied” with the loan provider, and 62% said they were satisfied with the loan application process.

 

With more research comes more confidence

With so many vendors and loan types to consider many Canadians are taking their time to conduct their own research before submitting an application.

 

Nearly 69% of those seeking truck and trailer financing or payday loans did less than two hours of research before applying, as did 63% of those seeking a personal installment loan. Those seeking a home equity loan were most likely to spend 10 hours or more doing research before applying (20%) followed by business loans and mortgage seekers (18%).

 

Nearly half of those seeking business loans and half of those seeking truck and trailer financing felt there wasn’t enough information available to help them make an informed decision. On the other hand three quarters of home equity loan seekers and about 70% of payday loan and personal installment loan seekers felt comfortable with the provider before applying.

 

Those aged 18 to 24 also did the most research, with 42% researching 10 or more options, more than twice and in some cases more than three times the proportion of other age brackets. Those in the oldest age bracket, 65 and over, were also more likely to put more than the average amount of time into their search, with 43% dedicating more than 3 hours, compared with an average of 36% across all age groups.

 

 

Those research hours were primarily spent exploring the lender’s website (60%) followed by reading online reviews (44%) and articles about the lender (23%). Another 20% of respondents also picked up the phone to chat with a prospective provider.

 

The majority of respondents (62%) ultimately found the providers they applied with through an online search, about 13% discovered the lenders they applied with through social media, and another 10.5% found them via a personal recommendation.

 

The application process is getting easier for most Canadians

After doing their research 55% of respondents ultimately applied with multiple vendors. The majority of respondents that live in Nova Scotia, Saskatchewan, and the Northwest Territories, however, applied with just one. The oldest demographic surveyed (65 years and older) as well as the youngest demographic (18 to 24) were most likely to apply with multiple vendors.

 

Overall 70.5% of those surveyed felt they had enough information to make their decision with regards to where they sent their applications, and almost 62% were satisfied with the loan application process.

 

 

 

 

Those in the 35 to 44 year old group were most likely to spend less than an hour searching for an alternative lender. They were also most likely to say their loan was fast and easy (36%), and the least likely to be denied (only 21.5% were denied).

 

On the other hand those aged 18 to 24 were most likely to struggle with the loan application process, with more than 50% saying that it was difficult, despite high success rates, as only 22.5% were denied. Those aged 45 to 54 were most likely to say they did not get approved for a loan, with nearly 31% being rejected.

 

Those in New Brunswick were also more likely to report an application denial than any other province, with 37% being turned away, followed by 34% of respondents in Saskatchewan and 32% of respondents in Manitoba.

 

Despite the higher than average rate of denial 82% of those in New Brunswick and Saskatchewan say they feel informed about the options available to them, the highest proportion in the country, followed by 75% of those in Newfoundland and Quebec. On the other hand, two thirds of those based in PEI did not feel informed about the process, followed by roughly 45% of those in B.C. and Nova Scotia.

 

The majority of home equity loan, business loan and equipment financing seekers were not satisfied with the application process. The most satisfied with the process were those seeking a payday loan, following by those seeking a personal installment cash loans.

 

Canadians receiving speedy service

Alternative lenders often offer same-day service, and the Smarter Loans State of Alternative Lending in Canada 2018 study confirms they’re making good on that promise. Overall, 42.7% of applicants received a loan the same day they applied, and 82% received their loan within three days.

 

Payday loans were most likely to be available same day, with half receiving funds the day they applied, compared with 39% of personal installment loans, 36% of truck and trailer financing loans and 28% of auto loans. About one third of home equity loans took more than two weeks to process, as well as about 30% of mortgage applications. About 20% of those seeking truck and trailer or other equipment financing also had to wait for more than two weeks for approval. Home equity loans and business loans were the only loan types that were more likely to require more than three days to process than not.

 

Canadians based in Quebec were most likely to receive funds the day they submit their application, where 55.5% got same-day funding, followed by half of respondents in Manitoba and 48% in both Saskatchewan and Ontario. On the flip side, you’re most likely to have to wait for more than a month if you’re based in New Brunswick, where 7.7% waited more than 30 days to receive funds, followed by 7.7% of those in Manitoba and 6% of customers in Newfoundland.

 

Overall, roughly 68% of borrowers agreed or strongly agreed that the application process was fast and easy to complete.

 

The trust gap is thinning, but remains

While Canadians are more receptive to alternative financing they still have some concerns about the process, especially when it comes to trust. Overall, respondents were nearly split on whether they believed loan providers are transparent about their fees, interest rates, terms and condition. Furthermore, more than half believe the industry isn’t entirely safe and free of scams.

 

As a result, Canadians haven’t yet decided whether they’re done with traditional borrowing methods. Of those surveyed 43% said they would go back to a bank, 19% were confident that the days of traditional borrowing were behind them, and a whopping 38% weren’t really sure whether their next loan was going to come from a brick and mortar financial institution or an online lender.  

 

Overall, respondents gave the industry 3.2 out of a possible 5 stars, confirming that despite providing a viable option, the alternative lending industry still has some work to do to improve their processes and inspire confidence in their services.

 

Related Research by Smarter Loans:

1. State of Alternative Lending in Canada 2018 – Full Study
2. Alternative Lending in Canada 2018 – Insights for All Lenders
3. Alternative Lending in Canada 2018 – Insights for Auto Financing and Equipment Lenders