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Study: Loans moving to the Net

In the next century, more than one-third of people trying to get car and home loans will turn to the Net first, a new study says.

In the next century, more than one-third of people trying to get car and home loans will turn to the Net first, predicts a study released today by market research firm Killen & Associates.

Today about 99 percent of loans are initiated in the offline world of physical offices and lots of paperwork, says the study. But by the year 2005, 30 percent of people seeking mortgage loans and 40 percent in need of car loans will start looking for them on the Net.

Although they probably will still go into an office to close the deals, the fact that they will first use the Internet will save lending organizations money both in time and paperwork, said David Jung, vice president of Killen.

It also will give lenders a broader reach.

"The lenders are finding they can reach out and expand into new territory and new states and sell as a result of the Internet," Jung said. National lending institutions that have wanted to branch out in the past found that they had to set up physical offices. "Now their Web site can be accessed," he added.

For those seeking loans, the move to the Net offers several advantages, Jung noted, including the ability to do easy comparison shopping. Loan sites are likely to be packaged with other database information--for instance, a housing lender might also include information about homes, neighborhoods, and other demographics.

However, for all the benefits the Internet could provide, it won't replace all face-to-face contact. Most deals--especially those involving a moderate to high risk for lending agencies--will be completed in person, he said.

"They can use the Internet to evaluate the prospects, and when they're close to loan approval, they can invite the person to a local office or have a local bank that [does that] on their behalf," Jung said.

Smaller loans, such as those for cars and motor homes, are more likely to be completed on the Net, he noted.

The chance that one day soon all loans will be initiated on the Internet is fairly slim, Jung added. In the next two to three decades, Jung said he envisions that at least one-third of applicants will want to stay away from the Net for loans.

But some institutions, such as Bank of America, already are getting into the act.