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Q&A with Robert Hartwig: Navigating personal loans and credit

Offain Gunasekara
March 1, 2018
navigating personal loans and credit

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If you’re shopping for a personal loan, you’ve likely been shuffling through lender-to-lender comparisons and trying to decipher financial jargon. We get it — it’s a daunting task. But with so many lenders in the market, it’s crucial to understand everything that’s involved in obtaining a loan. And understanding how personal loans and credit work together is one of those things. 

To get a better understanding of how personal loans can impact credit score, and why big banks are entering the personal loan marketplace, we turned to finance guru Robert Hartwig. He’s an associate professor and director of risk and uncertainty management center in the Department of Finance at the University of South Carolina.

Here’s a look at personal loans and credit with Robert P. Hartwig:

Q1. Does obtaining a personal loan impact a borrower’s credit score? If yes, how?

A. Yes, generally speaking, a new loan or establishing a line of credit will impact credit score. How much and in what direction depends on a number of factors.

If the new loan appears to increase the riskiness of a credit profile, then the borrower’s credit score could fall. Those with a high overall debt load, numerous new loans and credit lines close to their limits may suffer the most, particular if their credit history is less than perfect.

Q2. Which fees should a borrower be aware of when applying for a personal loan?

A. While some banks (including Marcus) advertise that their loans have no fees, borrowers need to remain vigilant in terms of the fees they might be charged for origination, closing, pre-payment and late payment.

Q3. Can you apply for more than one personal loan?

A. Sure. That said, the fact that you’ve applied and perhaps received more than one personal loan could harm your credit rating.

Q4. How do you feel about the large banks like Goldman Sachs, now offering personal loans through a different entity, Marcus? How do these offerings impact the personal loan marketplace?

A. Recent venture’s such as Goldman’s Marcus venture make sense for several reasons.

First, many traditional investment banking activities including advising, trading and IPOs are flat or shrinking.This creates a long-term growth challenge for some large banks, perhaps especially those without a retail bank operation. Hence, Goldman Sachs and others logically see old-school loan (and deposit) structures as potentially means for growth to help offset secular declines in other parts of their business.

Second, operations such as Marcus can be viewed as part of a broader FinTech investment strategy. Over time, big banks will help identify the small number of winners in this space.

We’d like to extend our sincerest thanks to Robert Hartwig for taking the time to speak with us. We appreciate your valuable insights.

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