Record High Surge of Personal Loans

Personal loans are United States’ fastest-growing consumer-lending category, as they have reached a new record this year. Data from TransUnion credit bureau shows a significant rise of about 18%, this only during the first four months of the year, reaching the sum of $120 billion.

The data also shows that Fintech companies represent 36% of total personal loans, in the year 2017. This is compared with 2010 data, when these companies represented less than 1% of total personal loans, to see how much the percentage grew in the last 7 years.

Another factor that is driving the rise of personal loans is the web-based firms, such as Lending Club, Prosper Marketplace Inc. etc. For example, according to a filling provided by Lending Club, the personal-loan originations have increased rapidly in the first four months of the year, specifically 20% higher than the previous year and up to $2.1 billion.

When deciding which the best personal loans are, you have to decide between those provided by the banks – which have lending as a core banking service since the founding of banks – and those provided by web-based firms, which are more likely to offer unsecured loans. Of course, in between making this decision, there are many other factors that help one decide over the best personal loans.

Naturally, this increase in personal loans comes with a high risk, especially for analysts. As interest rates rise, the risk that losses in consumer credit will increase is getting high. To back up this information, data from the Federal Reserve Bank of New York shows that the total household debt, in the United States, reached a new peak in the first four months of the year.

Don Fandetti, an analyst at Wells Fargo & Co., stated that what consumers are after when choosing these personal loans, is the consolidation of their debt and the ability to make large one-time purchases. Furthermore, for the new players like some of the fintech companies, personal loans are an easier way of doing things than a straight confrontation with the credit-card lenders.

The total consumer balance has reached impressive levels in the first quarter of the year. The balance is of $12.9 trillion, of which personal loans account for just 1%, according to data provided by TransUnion. Mortgages, which represent almost $9 trillion, are the largest part of consumer debt, after which student and auto loans follow.

As most of the lenders pull back from credit cards and auto, the personal-loan segment is expected to grow further. But there are also companies that scale back on personal loans, such as Discover Financial Services. Its CEO, David Nelms, during a conference back in June, said that some fintech companies may get sometimes “a little carried away on pricing and credit”.

But, as always, this arrival of new players in the personal loans area is not seen as a problem. This way, the consumers will have even more choices when trying to decide which one offers the best personal loan.