Alternatives to conventional bank or credit union loans have saturated the lending market over the last decade, with major players like SoFi, Lending Club, and Prosper taking the lion’s share of the new personal loan business. These fintech startups have offered a handful of advantages over traditional financial institutions, including the ease and convenience of the application process, options for borrowers with less than ideal credit scores, and in some cases lower costs for borrowing. Consumers have embraced alternative financial companies due in large part to the unique benefits offered, creating an opportunity for even more lenders to enter the space.
Recently, Goldman Sachs, a globally known investment firm, put forth their rendition of online lending this October. Goldman Sachs’ platform for personal loans, known as Marcus, offers a wide range of personal loan options for well-qualified borrowers. Personal loans provided through Marcus can be taken out for as much as $30,000, with loan repayment terms ranging from two to six years. Each loan underwritten and funded through the Marcus platform is assigned an interest rate that is competitively priced, in line with other major online lenders available on the market today.
Goldman Sachs is most widely known for its products and financial services made available to high net worth individuals. The firm has spent its nearly 150-year history catering to a niche market of investors, without giving much credence to the retail side of the business. Now, with the launch of Marcus, Goldman Sachs is entering the consumer-focused realm of personal finance in an effort to compete directly with other fintech companies in the personal loan marketplace.
What’s Different About Marcus
Marcus by Goldman Sachs is slated to be a formidable opponent to major online marketplace lenders for a variety of reasons. First and foremost, Marcus loans are funded out of the coffers of Goldman Sachs’ reserves; as a bank, the firm has a substantial amount held in deposit accounts from its customers which it will use to fund its new personal loan offerings. The majority of marketplace lenders currently available to consumers fund loans through the crowd – outside investors who use personal money to fund individual loan requests. Since Marcus loans are funded through Goldman’s deposit accounts, individual borrowers have a great chance of being approved for a loan so long as other underwriting criteria, like credit score and income, are met.
Another differentiating factor of Marcus loans is the fee structure for borrowers. Unlike alternative lenders, Marcus loans tout no hidden or glaring charges for origination or funding, late payments, or prepayment of a loan. A number of marketplace lenders assess fees for each of these activities, making the total cost of borrowing more involved than the cost of interest 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 the Goldman Sachs’ Marcus platform will feature fixed interest rates for the life of the loan. According to the press release from Goldman, Marcus loans will have interest rates ranging from 5.99% up to 22.99%, depending on credit qualification and the total amount borrowed. Competing lenders offer fixed and variable rate products to borrowers, but the maximum rate charged can be as high as 31%. Representatives from Goldman Sachs feel as though this difference puts Marcus in a highly competitive position within the market.
Who’s Fit for a Marcus Loan?
Currently, Marcus loans are being heavily marketed as an alternative to high-interest-rate credit card options. Instead of paying more than 20% on balances carried forward on a credit card, Goldman Sachs provides a simplified way to pay down debt in a more cost-effective way. However, Marcus loans are only available via direct invitation from Goldman Sachs, although the company plans to open up the platform to all borrowers in the near future.
The best-fit borrower for a Marcus loan has the same characteristics of a well-qualified borrower for any other personal loan option. Individuals should have a strong understanding of how a personal loan works, including its fixed monthly repayment and the total cost of borrowing over time. Similarly, personal loan borrowers are often required to have a strong credit history, score, and income level high enough to support a monthly loan payment. If you plan to use a Marcus loan or other personal loan to consolidate credit card debt, you may also want to analyze your current spending habits to ensure you’re strong enough to keep new credit card purchases to a minimum.
It will be interesting to see how Goldman Sachs takes on the consumer-focused marketplace with the introduction of Marcus loans. All told, the platform seems to be a sound alternative to personal loan options currently available to responsible, well-qualified borrowers.