It's become really easy to get a personal loan in the U.S., thanks to Silicon Valley.
Many venture-backed companies have popped up in recent years, powered by new underwriting technologies, consumer-friendly websites and a willingness to lend money where banks won't.
Personal loans funded on Internet finance site Credit Karma surged 148 percent in 2015, following growth of 374 percent in 2014, the San Francisco-based company told CNBC. For prime borrowers, interest rates can be less than half that of credit cards.
Enamored by the growth prospects, venture capitalists almost tripled their investments in financial services companies last year to $3.05 billion, the most since 2000, according to the National Venture Capital Association. Meanwhile, institutional investors and family offices have flooded the market with boatloads of debt to fuel the lending, generating handsome returns in the process.
The model is about to be tested.
Competition is driving up marketing costs. In addition to industry leaders LendingClub and Prosper, there's SoFi (which bought a Super Bowl ad), Earnest, Avant, Best Egg, Upstart and Payoff Loan, whose board includes Arianna Huffington and ex-Pimco CEO Mohamed El-Erian.
On top of the heightened competitive pressure, venture investors are now pulling back from dealmaking, capping future expansion opportunities. The credit market is simultaneously tightening, raising concern that defaults are just around the corner.
"This could be the perfect negative storm later this year. When investors start pulling out, it gets more expensive to get borrowers on the platforms and investors demand higher returns," said Peter Renton, founder of industry blog and research site Lend Academy and an investor in marketplace loans. "It's a very different environment now than we were in 12 months ago, when there was a lot of exuberance."
Source: Source: Company reports
There's not much exuberance anywhere in tech at the moment, with the Nasdaq down 9 percent to start the year, IPOs being nonexistent, and start-ups lowering their valuations and cutting staff.
Online lenders are in a uniquely sensitive spot, because of the uncertainties around how their loans will perform should global economic weakness lead to higher unemployment. After all, the entire growth of the industry has occurred during the bull market that followed last decade's financial crisis.
Equity investors have punished LendingClub — the lone public company in the market — despite the fact that revenue last year more than doubled and the company swung to a profit in the third and fourth quarters. The stock has plunged 23 percent this year, and is 44 percent below its IPO price from December 2014.
LendingClub CEO Renaud Laplanche resists trying to explain the stock, but says that neither competition nor the economy has had a big impact on the business.
Sales and marketing costs doubled last year alongside revenue, with a good portion of the increase used to promote the company's growth in education and health loans. When it comes to personal loans, LendingClub finds customers on comparison sites like Credit Karma, LendingTree and NerdWallet, while also investing in direct mail, display ads, search and retargeting.
Even with greater competition, the San Francisco-based company is seeing a surge in demand because consumers have no love for hefty credit card rates and fees.
"There are more providers of personal loans now than there used to be, but there's also a lot more awareness of personal loans as a product," Laplanche said. It's becoming "a mainstream alternative to credit cards and an alternative that's a more affordable and responsible way of managing credit."
A challenge for all of the lenders is to differentiate their brand from the pack, an expensive proposition for start-ups that aren't household names. The term "loans" is the second most expensive keyword for advertisers to buy on Google, according to WordStream.
From a marketing standpoint, the boldest move has come from SoFi, which got its start refinancing student loans and has recently moved into personal loans and mortgages.
Viewers of Super Bowl 50 earlier this month may recall an ad showing city dwellers running, walking, talking on their phones and eating. The commercial characterizes each as "great," "not great at all" or "never been great." The tagline is "great loans for great people," and the idea is for prospective borrowers to check out SoFi's website and see if they qualify for a loan.
Read MoreSoFi Super Bowl ad
The $5 million cost for a Super Bowl ad is a hefty chunk of change for a venture-backed start-up, but an affordable amount for SoFi, given that the company raised $1 billion late last year at a $4 billion valuation ($800 million more than LendingClub's current market cap).
In an interview with CNBC prior to the game, SoFi Chief Operating Officer Joanne Bradford said that ads on sites like YouTube and Facebook are great, but nothing gets the exposure of a Super Bowl spot.
"We want to be associated with great financial products, and we think this is the stage to tell the world," Bradford said.
In January, the 5-year-old company surpassed $7 billion in funded loans, just four months after topping $4 billion. That kind of growth is happening across the industry. Avant, founded in 2012, just passed $3 billion in loans and claims that it's the fastest platform to reach that mark.
LendingClub took five years to reach its first $1 billion, and in the past three years has jumped to $16 billion in originations. Prosper is now over $6 billion, less than two years after reaching $1 billion.
Thus, online personal loans would appear to be a saturated market. Until you consider that total U.S. consumer debt outstanding reached a record of $3.5 trillion last year, including $935.6 billion of revolving debt (mostly credit cards), according to the Federal Reserve.
That's a giant market for the new players to attack.
"Certainly there's a lot of growth, but it's still relatively small in comparison to the market size," Credit Karma CEO Kenneth Lin said of the emerging alternative lenders. "It's still mostly dominated by large financial services institutions."
Credit Karma connects its 50 million members to financial firms based on a consumer's credit score and a lender's underwriting standards. Last year, the company helped originate over 2.5 million loans.
There are plenty of concerns about how the online loans will withstand an economic downturn.
This month, Moody's placed some Prosper-issued loans on watch for possible downgrade. In a Feb. 11 note, the ratings firm cited "faster buildup of delinquencies and charge-offs than expected."
Higher defaults would be inevitable across much of the lending landscape should unemployment rise dramatically, but any cracks in the global economy have yet to show up in jobs reports. In fact, U.S. unemployment fell to an eight-year low of 4.9 percent last month, as employers added 151,000 jobs.
"All the fundamental consumer metrics that we'd look at look OK," said Al Goldstein, CEO of Chicago-based Avant, which provides loans of $8,000 on average to slightly below-prime borrowers.
Avant was valued at $2 billion in a $325 million financing round last year, just above Prosper's $1.9 billion valuation, and is using some of that equity to fund brand promotion. Goldstein said that customer acquisition costs have been fairly consistent over the last couple years, with spending on Credit Karma part of a diversified marketing approach.
Similarly, Earnest CEO Louis Beryl said his company invests across all the digital channels but has its best luck with existing customers telling their friends and colleagues about the service.
Earnest issues personal loans, though its primary business is in student loan refinancing. It touts a customized product that gives borrowers control over their monthly payment amounts.
In Beryl's view, no start-up would enter the lending market if it wasn't sufficiently prepared to deal with fierce competition. America's four largest banks control over $8 trillion in assets.
Rather, he's focused on the massive opportunity to couple software-based underwriting and online distribution with an emphasis on pleasing customers. That's not a story the giant banks can tell.
"Financial services broadly is one of the most competitive spaces in the history of mankind," said Beryl, who previously worked at Morgan Stanley, Lehman Brothers and Deutsche Bank. "What we're really doing is taking away tremendous market share from incumbents that are offering a worse experience."
Who can do so profitably? That's the question for 2016.