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Data for today’s episode is provided by Mercator Advisory Group’s report – Credit Card Lenders: Hone Strategies and Do Not Let Fintechs Scare You.
Revolving credit is more flexible than installment credit:
- Optimistic forecasts for credit installment loans abound, but they overlook 2 factors:
- Household budget details are typically omitted
- Revolving credit is a lot more flexible
- Installment credit creates a scheduled payment and term: a set level of payments at a fixed interest rate
- Each additional installment credit loan requires its own terms – a consumer could stack 8 concurrent loans to furnish a household
- With revolving credit card debt, a consumer could transact endlessly up to an established limit.
- With revolving debt, consumers make larger payments to decrease the interest paid – or pay the minimum (typically 1/36th)
- Installment loans carry specific balance calculations for each event, whereas revolving lending places all the debt into one bucket
Marketplace lenders and non-bank point-of-sale finance lenders are not likely to disrupt the course of credit card lending.
Marketplace lenders now dominate the installment loan industry, a segment previously dominated by banks. Loan options are appearing everywhere, but fintechs are simply repackaging old lending products for loans and point-of-sale finance. Credit card issuers should focus on their products’ benefits rather allowing these aspiring disrupters to change the playing field.