Introduction of Personal Loans Part 1

A Bank Taps a New Stratum of Customers

THE National City Bank, the largest institution in the United States, has opened a new era in banking by the establishment of a Personal Loan Department which will make personal loans without collateral to salaried men and women in amounts rang-ing from $50 to $1, 000.

Interest will be charged at the rate of 6 per cent. There will be no other charge for investigation or service, and the only guaranty required will be the signature of two responsible co-makers on the borrower’s note. One year will be required for repayment. Deposits will be made weekly, semi-monthly, or monthly in a compound interest account in order to accumulate the desired amount. Interest, compounded monthly, is paid on these deposits.

This is a long and important step in the democratization of banking service, a process which has been going on at a rapid pace for the last fifteen or twenty years, and which has been of great value to the banks themselves and to the new strata of clients.

The new department received a prompt and cordial welcome. Leading bankers and industrialists, the newspapers, and the public all showed their approval, the business leaders and the press by the warmth of their comments and the public by rushing to take advantage of the offer. Nearly a thousand men and women applied for loans the day the department opened.

Various benefits that will accrue to the National City Bank and its new clients are immediately evident. Leaving aside for a moment the question of the Personal Loan Department’s own current dollar-and-cent profits, the bank is sure to gain indirectly through the publicity given the plan, the good will of its borrowers, and the discovery of new customers for other departments. Charles E. Mitchell, the National City’s president, said frankly that he desired “to make closer contact with the people of New York City and, specifically, those individuals minded to thrift.” Already among the applicants to the Personal Loan Department the National City has uncovered a substantial amount of business for its other subdivisions. Unquestionably, many of the new borrowers will return later to lend money in the form of deposits.

Whether the department will pay for itself directly no one knows yet, although the National City believes that it will. The answer to this question will be an important, though not a decisive factor with other banks in considering whether or not to follow the National City’s lead. They will be pretty sure to do so if the department can pay its own expenses, or even run at a small loss. After all, the 6 per cent interest on the loans is only one of several joint products, education and the creation of good will being the most valuable of the others. If the interest alone will pay for all of the joint products, it is obvious that the good will and the education can be put down as clear profit.

Source: The Outlook, 23 May 1928

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