By JC Reindl
Detroit Free Press DETROIT
Quicken Loans has expanded into the business of personal loans with its first lending product that is not a home mortgage.
Detroit-based Quicken this week launched RocketLoans, an online service offering cash loans of $2,000 to $35,000 to prospective borrowers with good credit scores and financial histories. The loans have fixed terms of three to five years and carry interest rates ranging from just over 5 percent to the low or mid-teens, depending on a borrower's financial history. There also is a loan origination fee.
RocketLoans are generally aimed at consumers who wish to consolidate high-interest credit card debt, do home improvements, pay medical expenses, finance weddings or help with a small business. The product gives Quicken Loans an entry into the hot market for personal loans that are being offered via the Internet by a growing number of nontraditional banks and lenders.
RocketLoans is a new and distinct company from Quicken, under the same parent company Rock Holdings.
"This will be the first financial service that is not a mortgage product that we have offered in 30 years of existence," Todd Lunsford, CEO of RocketLoans, said in an interview Monday. "Many folks that are looking to do a mortgage are looking to take cash out and pay for other debt. And in today's mortgage market that can sometimes be difficult, depending on where they are."
Quicken is tapping into the growing market as interest rates rise and as some predict the traditional mortgage business, including refinancing home mortgages, could be slowing down.
Personal loans are considered an unsecured loan because unlike a mortgage or auto loan, they aren't tied to a physical asset that can be foreclosed on or repossessed. And like credit card debt, they can be discharged in a bankruptcy. This added risk is why personal loans carry higher interest rates than secured loans.
To keep defaults to a minimum, Lunsford said RocketLoans connects with dozens of databases to verify a prospective borrower's financial history and income to ensure they can pay back the loan. Even so, RocketLoans says its technology allows borrowers to complete the online application and get approved in as little as eight minutes, with the money hitting their bank account within 24 hours.
Lunsford anticipates that 30 percent to 40 percent of all RocketLoans applicants would get approved.
"We make sure that we do not overextend clients," he said. "In fact, folks that have too much debt currently we actually deny. There are sites that may approve them, but we've made the decision that we do not want to put individuals in the position where they can't repay the debt."
The personal loan business has gained popularity in recent years with companies such as Prosper Marketplace, Lending Club and Avant that originate loans through the Internet. Some of these companies use a peer-to-peer lending platform in which borrowers apply online for loans and investors then pick which loans to invest in.
RocketLoans has partnered with a New Jersey-based Cross River Bank for its personal loans. Cross River Bank did more than $2 billion in personal and so-called marketplace loans last year. Some of those loans were securitized and sold to investors in the secondary market, while others were held by the bank and kept on its own books, said Cross River CEO Gilles Gade.
Todd Albery, CEO of Quizzle, a Detroit-based credit report and personal finance company owned by Bankrate, said he thinks that personal loans are gaining popularity because technology has made them easier to obtain and with the improved economy and lower unemployment, consumers are feeling more confident about spending.
Albery said he thinks personal loans can be particularly helpful for millennials in their 20s and early 30s, "who don't necessarily have a lot of savings built up and are needing these loans when life's storms come and they need to pay for something."
He also noted that the reported default rates on personal loans are relatively low, or about 3.5 percent, according to the TransUnion credit information firm.
"These are not loans that anyone can go get," Albery said. "Your credit score for the most part is a prime to super-prime score."
Quicken Loans pioneered mortgage lending through the Internet during the 1990s and became a top-ranked national lender in the aftermath of last decade's housing boom and bust. Quicken reported $80 billion in mortgage origination volume in 2015, making it the second-largest direct-to-consumer mortgage lender in the country. ___ RocketLoans Facts
-Offers personal loans of $2,000 to $35,000 for three- to five-year terms.
-Interest rates from around 5 percent to mid-teens.
-Origination fee of 1 percent to 5 percent of the loan amount.
-No prepayment penalties.
-Expected uses include debt consolidation, home improvements, wedding costs, medical expenses, starting a small business.
-Is a new company under the Rock Holdings' corporate umbrella with Quicken Loans.
-Has 22 employees