Industry Study

Industry Study


2022 Personal Loans Industry Study

Over the last 15 years, investors funneled many billions of dollars into the personal loan market. These investments came in the form of venture capital, various bond structures, and even direct investments in loans. Fueled by this influx of capital (and some innovative technologists), the once stagnant personal loans industry exploded with double-digit growth rates.

In the pandemic years, the growth stalled, but it has since resumed. Will the renewed growth last, or is the revivified personal loan boom a short-term phenomenon? SuperMoney’s personal loans industry study will answer that question while also providing a detailed look at the consumer lending sector as a whole. Let’s get started.

Our study will take an in-depth look at the most important personal loan statistics. Here is a summary of the key statistics to consider when analyzing the consumer lending industry.

Key personal loan statistics

  • The percentage of personal loans accounts 60 or more days past due is rising. In October 2022, 3.96% of personal loan accounts are in this hardship status.
  • From the first quarter (Q1) 2021 to Q1 2022, there were 5 million new personal loan accounts.
  • Personal loans are one of the fastest-growing consumer debt products. By Q3 2022, the existing personal loan debt was $209.6 billion.
  • There are still far fewer unsecured personal loan accounts (24.9 million in Q2 2022) than credit cards (500 million in same quarter).
  • The average price dispersion of personal loans is 6 percentage points. Comparing several lenders can save you a lot of money in interest.
  • Since 2012, unsecured personal loan balances have more than quadrupled ($48.3 billion vs. $209.6 billion).
  • The average balance for new unsecured personal loans is $8,085 in Q2 2022, which is $956 more than in 2021.
  • Interest rates for personal loans are low compared to credit cards: 8.73% as of April 1, 2022 (24-month loans at commercial banks).
  • The average personal loan balance was $10,344 in Q2 2022, up by $1,265 compared to Q2 2021.
  • The two Washingtons bookend the personal loans balance ranking. Washington State has the largest average personal loan balance with $29,997, and the District of Columbia has the lowest average personal loan balance with $12,241.
  • The most common reason for obtaining a personal loan is to consolidate debt and refinance credit card debt. Forty-seven percent of personal loans issued through SuperMoney were used to consolidate debt.
  • From Q1 2021 to Q1 2022, originations were up by 31.58% year-over-year. This is a big improvement over the -15.79% “growth” (read: 15.79% contraction) from Q1 2020 to Q1 2021.
  • As of Q3 2022, unsecured personal loans had a delinquency rate of 3.89%. That is a 1.37% increase over the same quarter a year before.
  • From 2019 to Q2 2022, the share of loan originations taken by subprime borrowers has increased for all lender types: from 34% to 56% for traditional finance companies, from 6% to 24% for fintech lenders, from 9% to 12% for credit unions, and from 3% to over 7% for banks.

What is a personal loan?

Personal loans, also known as consumer loans or installment loans, are closed-end, uncollateralized sources of credit. This means that, unlike mortgages and most auto loans, they don’t require collateral. And unlike credit cards, they have fixed payments for a specific period of time.

Read this for more information on credit card debt and the consumer credit card industry.

A brief history of personal loans

Although borrowing is as old as humanity, large-scale lending operations have focused primarily on secured loans for most of history. Secured personal loans were usually based on property, such as mortgages, vehicles, family heirlooms (pawn loans), or next season’s harvest.

The reason is obvious. Few lenders want to risk being left with a handful of worthless loan contracts. Asking for collateral made lending a viable business. Unsecured loans were mainly left to fringe and underworld lenders who used other methods to secure their investment.

After World War II, new forms of credit — such as payday loans, credit cards, overdraft protection, bank lines of credit, and unsecured personal loans — became more popular.

Personal loans, credit scores, and statistics

Dramatic changes in technology and financial theory have accelerated the growth of unsecured personal loans. Lenders now have access to mountains of publicly available financial data and the credit scoring tools and software required to analyze them. The advent of centralized credit bureaus and credit scoring models are a driving force for unsecured lending.

Now, lenders can base decisions on applied statistics instead of relying entirely on human judgment. This makes underwriting unsecured personal loans faster, cheaper, and financially viable.

So how big is the personal loans industry?

As of October 2022, the value of consumer loans at all commercial banks was $1.823 trillion in the United States alone.

Consumer unsecured loans, also known as personal loans, only represent a small percentage of consumer debt. However, the size of personal loan debt varies significantly depending on the source you choose and how you define personal loans. TransUnion has the total balance of unsecured personal loan balances in 2022 Q3 at $209.6 billion.

The growth of personal loan balances rose to 34% in 2022 (from -2.95% in 2020)

Since 2013, the year-over-year growth of personal loan balances has been in the double digits in all but three years (2017, 2020, and 2021). In 2020, personal loan balances contracted by nearly 3%. Positive growth resumed in 2021 (5.6%) and has skyrocketed in 2022 (34% by the end of Q3).

The average debt per installment loan borrower is more than twice the per-borrower credit card average

The average debt per personal loan borrower was $10,344 in Q2 2022, over twice the average debt per credit card holder.

By that same quarter, the number of consumers with access to unsecured personal loans had grown 12.30% over the year, outpacing the 5.4% growth in consumers with access to credit cards.

And, while unsecured personal loan originations remained well below originations for credit cards (5 million vs. 18.9 million in Q1 2022), personal loan originations have shown stronger growth.

As well, the average new loan amount exceeded the average credit card limit.

By Q3 2022, TransUnion reported 14.5% year-over-year growth in the average balances of unsecured personal loans, ahead of even credit cards (12.7%). And, whereas credit cards showed 23.53% growth in originations from Q1 2019 to Q1 2022, unsecured personal loan originations grew 31.58% over the same period.

In spite of this healthy growth in personal loans, there are still far fewer unsecured personal loans than credit cards.

So, personal loans remain behind credit cards in terms of existing accounts and originations. But the demand for personal loans still appears to be growing.

SuperMoney data indicates that 39% of the borrowers we connect with lenders seek personal loans for debt consolidation, which often means paying off credit cards. And, of the borrowers who get approved, 47% use their loans for debt consolidation. If this statistic holds across the lending industry, rising credit card demand should ensure rising personal loan demand, since nearly half of personal loan money goes toward paying off credit cards. To what extent the Federal Reserve’s inflation-driven rate hikes will put a damper on rising demand remains to be seen.

Personal loans may not be as easy to qualify for as they once were, even from fintech lenders

In its May 2018 and May 2017 reports on the economic well-being of U.S. households in 2017 and 2016, the Federal Reserve reported percentages of applicants who received at least one denial for various types of credit. Sadly, they have not chosen to continue reporting this statistic in the years since. Nevertheless, looking at the trend over those two years may be instructive.

2016–2017: unsecured personal loan become more difficult to acquire

In 2016, one in three credit card applicants was denied at least once. Only one in four personal loan applicants was denied. Student loans had a lower denial rate (14%), but that’s because over 90% of student loan debt is made up of federal student loans, which are subsidized and pose minimal risk to lenders. (This has been the case since before 2016. As of the end of September 2021, MeasureOne reported the percentage as 92.39%.)

In 2017, still roughly one in three credit card applicants was denied at least once. However, nearly four in ten personal loan applicants were denied. Student loans remained the easiest to get, but all other credit types had lower denial rates than both personal loans and credit cards. Whereas in 2016 personal loans may have been the easiest form of credit to to qualify for, in 2017 they became the hardest.

2019–2021: fintech personal loans continued the trend

Experian’s research indicates that, for digital (fintech) borrowers, at least, qualifying has continued to become more difficult. They found that, whereas 31% of online borrowers in July 2019 has sub-prime credit, only 22% were sub-prime in July 2021. (Experian uses the VantageScore rather than FICO to determine credit ratings. A sub-prime VantageScore is anything at or below 660. Learn more about good and bad credit scores.) Experian attributes fintech lenders’ greater strictness to two factors: (1) high demand has allowed them to maintain loan volume while tightening requirements, and (2) consumers’ credit scores are higher than they’ve ever been. An additional factor may be the growing use of AI to choose between potential borrowers.

2022 and beyond: AI promises easier approval for qualified borrowers

As you know from the key stats above, and as you’ll learn more about below, the percentage of personal loans to subprime borrowers in 2022 was up compared to 2019 for all lender classes. Does this mean that lenders across the board started relaxing standards in 2022? If they did, we suspect this will be a short-lived trend. Inflation concerns and rising interest rates make rising risk aversion among lenders seem likely.

While bad-risk borrowers may find it more difficult to get fintech loan in the coming year, some borrowers who might once have been blacklisted as bad risks could do better than expected. This is because newer methods of risk assessment are using more than simple tools like FICO and VantageScore. The growing use of artificial intelligence (AI) in the finance industry promises to increase approval rates for qualified borrowers.

The use of artificial intelligence in the financial industry is growing….Today I will discuss a type of AI — machine learning (a.k.a ML) — that discovers relationships between many variables in a dataset to make better predictions. Because ML-powered credit scores substantially outperform traditional credit scores, companies will increasingly use machine learning to make more accurate decisions. For example, customers using our ML underwriting tools to predict creditworthiness have seen a…51% increase in approval rates for personal loans…with no increase in defaults.” — Douglas Merrill, CEO ZestFinance, 2019 Testimony to the House Committee on Financial Services

This development promises growth in personal loan approvals going forward, other market influences being equal.

SuperMoney’s comparison tools will always direct you to the best borrowing opportunities given lenders’ current assessment methods. The best way to find out if you can qualify for the loan you want is to use SuperMoney’s tools to find and apply for the personal loans that suit your needs. First, review some of the best personal loan now on offer. Second, research personal loan providers that offer the rates and terms you’re looking for here.

Personal loan APRs vary by an average of 6.2 percentage points depending on the lender and credit score

When shopping for a personal loan, the lender you apply with matters — a lot. Lenders will offer a wide range of annual percentage rates (APR) to the same borrower. To determine exactly how much borrowers can save by comparing several lenders, we analyzed roughly 206,000 loan requests and resulting offers for borrowers who applied for a loan via SuperMoney’s loan offer engine from January to early December 2022. We found that the average difference between the highest and lowest APR offer (across FICO scores and loan terms) was 6.2 percentage points.

Note that the loan offers used in this the next section assume a constant income. This ensures that differences in income do not obscure the influence of FICO scores and loan terms.

Across loan terms, borrowers with fair credit (580-669) benefit the most from comparing multiple lenders

At a given income, fair-credit borrowers had the widest range of APR offers, 10.3 percentage points, while borrowers with excellent credit had the smallest range, 3.1 percentage points. This, at least, was true when all loan terms were considered together, as you saw in the preceding chart. For all loans taken together, it is borrowers with fair credit who can benefit the most from shopping around for the best rates.

The picture changes somewhat if we look at personal loans with 36-month terms exclusively.

For these loans, the average dispersion of loan APRs grows as FICO scores drop. As a result, the lower your score, the more you stand to gain from comparing multiple lenders.

Personal loans are typically credit-based products. This means the cost of the loan is based on the credit risk of the borrower. The most widely used credit score is FICO, which ranges from 300 to 850. But don’t get wrong idea. The widespread use of FICO doesn’t mean people with the same credit score get the same interest rates with every lender. Even the same people get completely different interest rates and terms depending on the lender. The wide range of APRs offered to the same borrowers highlights the importance of comparing multiple lenders.

Comparison shopping benefits some consumers more than others

Consumers with fair (580–669) and good (670–739) credit had the largest price dispersion across all loan terms. These borrowers, therefore, had the most to gain from comparison shopping. The difference between average minimum and average maximum rates was 10.3 percentage points for fair-credit borrowers and 7.93 points for good-credit borrowers. However, what is probably most surprising is that, for consumers with excellent credit (800+), price dispersion was wider than the difference between their average APR and borrowers in the FICO bracket below.

So, for consumers with excellent credit, not taking the time to comparison shop could be the equivalent of dropping an entire credit score bracket. In these cases, comparison shopping can save you more money than increasing your credit score by 100 points.

If we consider only loans with 36-month terms, the picture is similar, except that borrowers with poor credit (FICO <580) see wider price dispersion in loan offers than borrowers in any other credit bracket. At the same time, average APRs for 36-month loans are lower than average APRs for all loan terms taken together for poor-, fair-, and good-credit borrowers (FICOs <740). For borrowers with very good or exceptional credit (FICOs of 740+), however, average rates for 36-month loans exceed those for all loan terms taken together. As a rule, then, it appear that, the poorer your credit, the more you should prefer a loan with a 36-month term.

The average interest rate for personal loans is roughly 4 percentage points lower than 20 years ago

Interest rates vary widely by lender and loan type. The rate of 24-month personal loans offered by commercial banks is a baseline rate that the Federal Reserve reports on a quarterly basis.

Personal loans rates and credit card debt consolidation

The classic sources of debt consolidation loans are secured loans, such as home equity loans and mortgage refinances. However, personal loans with low interest rates have become an increasingly popular method to pay off credit card debt. That it was easier to qualify for personal loans for several years is only part of the story.

The difference in the average interest rates for personal loans and credit cards with a balance has increased since 2003 when they were roughly the same (~12%) to a spread of nearly 8% in 2022.

Notice how personal loans continue a downward trend while credit card rates trend upward, recently joined by mortgage rates (and perhaps soon by auto loans). Check our credit cards industry study for more information on this trend.

Washington is the state with the largest average personal loan balance

Among U.S. states, Washington has the largest average personal loan balance at $29,997. The state with the lowest average balance is Hawaii, at $12,538. The District of Columbia, a special territorial division for the U.S. capital, has an even lower average balance of $12,241.

FinTech lenders control the largest market share of unsecured personal loan balances

Since 2010, the personal loans sector has seen a sharp increase in the number of lenders and significant shifts in the market share of unsecured installment loan balances.

In 2010, financial technology (fintech) lenders were not even a blip on the radar. By 2016, fintech lenders owned 29% of the unsecured personal loan balances. Fast forward to 2022, and fintech lenders controlled 54% of the market share.

Although all lender types (save those in TransUnion’s tiny but growing “Others” category) have lost ground to fintech lenders, traditional finance companies were the biggest losers with a 16% drop in market share from 2013 to 2022.

TranUnion is not alone is identifying this trend. Experian’s research, reported in a December 2021 white paper, indicates that 57% of the personal loans originated in July 2021 were digital (fintech) loans.

What is a fintech lender?

A fintech lender is an online lender that bases its underwriting, risk assessment, funding, and marketing on financial technology. Most lenders, including traditional banks and credit unions, now fit this description. But the term is generally used for startups and relatively new firms that operate exclusively online and use alternative data sources and new credit models that traditional banking channels don’t consider.

Only 39% of personal loans are subprime

The personal loan sector has the reputation of being a product for higher-risk consumers. Although subprime borrowers are still well represented, most of the growth is in the prime and near-prime risk tiers. As the market grows, the lion’s share of personal loans is shifting to moderate-risk borrowers.

In 2022, 56% of the personal loans originated by traditional finance companies were to subprime borrowers. For all other lender types, the majority of originations were to near-prime or better borrowers: 92% of banks’, 88% of credit unions’, and 76% of fintech companies’ originations were to near-prime (601–660 credit score), prime (661–720), prime-plus (721–780), or super-prime (781–850) borrowers.

Compare the risk type distribution of borrowers by lender type since 2015. From 2015 to 2019, all lender types except traditional finance companies squeezed out subprime lenders from their portfolios. In 2019, only 6% of fintech loans were subprime, while in 2015 it was 30%. In 2022, however, subprime fintech borrowers rose to 24%. Subprime borrower percentages have risen for all lender types since 2019, though only traditional finance companies have risen above the 2015 level.

A key fintech advantage

One of the key advantages of fintech lenders is that they have been more willing to expose themselves to regulatory risk around using alternative data sources for underwriting or leveraging emerging technologies like machine learning in their underwriting algorithms. While these emerging technologies may be able to more accurately determine the default risk of potential borrowers, legal grey areas exist around the disparate impact on protected classes or providing proper adverse action documentation, for example.

What are the key business models and capital sources for personal loan lending?

There are three key models personal loan lenders use to source capital. Some lenders combine multiple capital sources in hybrid funding models.

  1. Fractional Reserve Banking — In the traditional banking model, loans are funded from the deposits of bank customers. This is the method banks (such as Discover or Bank of America) and credit unions use.
  2. Direct or Balance Sheet Lending — Loans can also be funded by the balance sheet of the loan origination company, also known as balance sheet lenders. These lenders may issue bonds/credit facilities to fund their balance sheet and then lend out money at enough of a premium to make a profit. Their credit facilities are typically secured by the loan portfolio. Balance sheet lenders may also choose to sell off groups of loans in securitizations to provide liquidity. Fractional reserve banking gives banks a significant cost of capital advantage. As a result, balance sheet lenders tend to be more popular in the non-prime space which banks tend to avoid and where higher interest rates can better support the arbitrage occurring. NetCredit is an example of a direct balance sheet lender.
  3. Marketplace Lenders — Finally, some companies use a marketplace model where prospective borrowers can access funds from investors who invest directly into loans. In this model, the marketplace investors take on the default risk and earn interest directly on the loans they fund. The marketplaces themselves generally earn an origination fee for originating the loan and a servicing fee while the loan is still active. Marketplace lending companies, such as LendingClub, Peerform, and Prosper, primarily use this business model. However, many companies also take some of the risk by funding part of the loans with their own funds (balance sheet lending) in a hybrid model, such as Avant.

Marketplace lending platforms and unsecured loans

Marketplace lending platforms are changing the way individual consumers and small businesses shop for loans, by combining big data with innovative financial tools. These new lenders offer new anti-fraud mechanisms and sophisticated credit models that are attractive to borrowers and investors alike.

According to a 2017 report by PwC, 56% of banking CEOs were then concerned about the threat of new entrants in the lending industry, and 81% were worried about the speed of technological change. The speed of technological change remains a prominent concern of business executives across industries. PwC’s 2022 Global Risk Survey finds that 79% of executives “report that keeping up with the speed of digital and other transformations is a significant risk management challenge.” As for survey respondents in the banking industry, they rank “market risks,” which would include new entrants into the industry, as their top concern in risk management (27%). Their second-place concern, cyber/info management (26%), seems clearly associated with the speed of technological change, which complicates information management and security.

Who is the target audience of unsecured consumer lending?

Unsecured personal loans are a popular source of credit. But what type of consumers apply for unsecured consumer loans?

This is what we know about borrowers of installment loans:

In the last 30 years, the percentage of families with installment loans has remained relatively stable across most family structures.
Loans among childless singles at or over 55 years of age have increased notably over this time. They have also increased noticeably among couples with no children.

There is a strong correlation between having children and installment loans. Age is also an important factor. Some 67.4% of couples with children have installment loans, while only 28.5% of single people over 55 without children have them. Interestingly, the correlation, while still strong, is not quite as strong as it used to be.

The 38.9% difference in 2019 puts the two categories of borrowers closer together than they were in 1989, when 66% of couples with children versus 16.8% of childless singles over 55 had these loans. That made the 1989 gap 49.2%, meaning the two groups are 10.3% closer together in 2019 than they were 30 years earlier.

The median value of installment loans has doubled for most demographics. Couples without children are the exception.

Upper-middle-class families are the most likely to have an installment loan. Around 60% of families with incomes between the 40th and 90th percentiles have an installment loan. Among these families, those with incomes exceeding those of 80% to 90% of families were the most likely to have an installment loan.

Why do people get personal loans?

One of the attractions of personal loans is you can use them for practically anything. Consumers use them to pay for luxuries, such as vacations, expensive weddings, or large purchases, or to cover unexpected household expenses, such as home or car repairs. More than 50% of installment loan borrowers had less than $5,000 in their emergency fund.

SuperMoney currently generates tens of thousands of personal loan applications per month. According to SuperMoney’s loan application data, the main reasons borrowers apply for a consumer loan are debt consolidation (39%) and household expenses (16%).

Repeat customers are a big opportunity for lenders

Federal Reserve data for 2014–19 found that fewer than one in three credit card borrowers pay off their card balances every month. Meanwhile, a 2017 report by Experian revealed that 67% of personal loan borrowers had a balance on their credit cards and 31.5% of the borrowers who paid off a personal loan applied for a new loan within a few months.

According to the same Experian report, 68% of borrowers that get a new loan shortly after closing another installment loan do so with the same company.

What is the state of personal loan delinquency rates?

As of Q3 2022, 3.89% of personal loans are delinquent (60 days or more past due). While not a high percentage, this is up from the Q3 2021 low of 2.52%. Serious delinquency rates (90+ days) are lower at 2.46%, but this too is up from a Q3 2021 low of 1.65%. Meanwhile, Q3 2022 finds 5.90% of personal loans 30 or more days past due, up from a Q3 2020 low of 3.82%.

The last time 30+ day past due accounts were higher was in Q3 2011 (6.01%). Delinquencies of 60+ days were last higher at 3.91% in Q3 2013, and 90+ day delinquencies last topped the 2022 percentage in Q3 2013 at 3.91%.

These are the latest figures from TransUnion. Note that Experian’s December 2021 fintech white paper reports lower 2019–2021 overdue and delinquency rates for both fintech and all lenders. For instance, its July 2021 60–89 day delinquency rate for all lenders is 0.39%, significantly below TransUnion’s 2.52% for 60+ day loan delinquencies in Q3 2021.

However one explains the TransUnion-Experian discrepancy in prior years’ figures, it’s clear that overdue and delinquent accounts have trended upward in 2022. That, at least, is the nationwide trend. What might things look like on a state-by-state basis?

Colorado is the state with the lowest delinquency rate

Colorado is the state with the lowest delinquency rate for personal loans with a 1.5% 60+ days-past-due (DPD) rate. The state with the highest delinquency rate is New Mexico with 6.72% of borrowers in the 60+ DPD category.

For comparison, here are the delinquency rates across all states:

The year-over-year delinquency totals are low. However, the percentage of accounts in hardship is still high, and the debt burden on American consumers is close to all-time high levels. Overall personal debt — including mortgages, auto loans, and student loans — hit $16.51 trillion in Q3 2022.

Looking back: what caused the pandemic-era decline in growth?

It’s impossible to point to one cause, but these factors certainly played role:

  • This cooling-off came on the tails of aggressive venture capital fund raising that fueled a battle for market share. In many cases, funding for marketplace lenders was flush but ultimately fickle.
  • The appetite for credit dropped during the pandemic as consumers adjusted their consumption to avoid unnecessary purchases and expenses.
  • The multiple stimulus packages and extended unemployment benefits also reduced the demand for personal loans.

What is the future of consumer lending?

After some weakness in the pandemic years, discussed in the preceding section, personal loans have resumed strong growth. By 2022 Q1, personal loan originations had reached 5 million, above the prior high of 4.6 million in 2019 Q1. At the end of the third quarter of 2022, year-over-year growth in loan balances was 34%. The average debt balance per borrower in unsecured personal loans has also resumed strong growth. In 2019, it was $8,596. It grew modestly in 2020 ($8,895) and 2021 ($9,079.09), then resumed stronger growth in 2022 ($10,334). (Figures are for Q2 each year.) In percentage terms, the average debt per borrower grew 20.34% from Q2 2019 to Q2 2022.

By Q2 2022, consumers with personal loan accounts rose to 21 million, a 12.3% increase since Q1 2021. And outstanding personal loan balances rose to $209.60 billion by Q3 2022, up 34% over the Q3 2021 total. From Q1 2021 to Q1 2022, personal loan originations rose 31.58%, from 3.2 million to 5 million.

Though the pandemic disrupted the personal loans industry from late 2020 into 2021, recovery in 2022 has been strong. Rising interest rates and tightening approval criteria could dampen this somewhat in the coming year. However, continued low unemployment and rising wages, combined with rising expenses due to inflation, may keep Americans’ demand for personal loans strong. On balance, we expect the industry to continue growing in the coming year, but most likely at a more modest pace than it has seen in 2022.

Why are there so many more lenders than there used to be?

According to Dr. Nonna Sorokina, Professor of Finance at The College of New Jersey, “The widespread availability of reliable and secure Internet services, increasing coverage of the population, and relatively easy and inexpensive access to extended geographic area lowered barriers to entry into the industry and prompted a rapid growth in new entrants.”

Online lenders, such as Rise and NetCredit, have penetrated previously underserved areas where there was little or no competition from traditional banking services. Lower-income borrowers and people who live in areas without access to bank branches now have more options. Some lenders specialize in certain groups of borrowers, such as loans for members of the military, medical loans, or wedding loans.

These new entrants may not always have the deep pockets of traditional banks, but they don’t have to deal with the same regulations as traditional banking institutions. As Julapa Jagtiani and Catharine Lemieux argued in their 2017 report on fintech lending for the Federal Reserve Bank, “Fintech has been playing an increasing role in shaping financial and banking landscapes. Banks have been concerned about the uneven playing field because fintech lenders are not subject to the same rigorous oversight.”

Is this growth sustainable?

A couple years back, Dr. Sorokina said, “In the near-term, I would not be overly optimistic regarding the growth in consumer loans.” Would the strong post-pandemic recovery change the doctor’s mind? Probably not.

Predicting financial trends is risky, but three trends suggest that the renewed growth will level off: interest rates, competition, and tightening credit standards.

After a decade of historically low interest rates, the Federal Reserve Bank is increasing them to reign in inflation. Higher interest rates will probably reduce lending volumes.

The second factor is competition. Dr. Sorokina’s explanation from a couple years ago remains instructive: “Competition is generally viewed as a positive force, but it is much more complex in banking. Competition in banking is known to increase the risk for the economy and to backfire eventually. Think how mortgage loans were cheap and available to nearly anyone recently, and how the resulting crises hit hard on those same consumers. Since then, regulators pay more attention to lending practices that result from increased competition.”

The final factor is tightening lending standards. As noted earlier in the report, it may become a little harder to qualify for unsecured personal loans in the coming year. If lenders go down the expected risk-averse path, it will mean originating fewer loans than they would otherwise.

The Bottom Line

Here’s a quick summary of what we know about the personal loans market.

  • The consumer lending market is a favorite source of credit for millions of consumers, and it’s growing.
  • Debt consolidation and household expenses are the main reasons consumers get a personal loan.
  • The growth rate of new loan originations is strong post-pandemic.
  • Though the consumer lending market shows solid economic fundamentals, multiple factors suggest growth may slow in the coming year.
  • The access to credit for consumers has increased and so have personal loans’ balances.
  • Delinquency rates are low, but have recently risen.
  • Interest rates are starting to rise, which could reduce consumers’ appetite for credit. There are also reasons to expect that lenders will become more choosy in whom they loan to.

Consumers like personal loans because they offer lower interest rates and faster distribution of funds than most other sources of credit. However, rates and speed of funding vary widely from one lender to another. Borrowers can save money by comparing rates and terms before accepting a loan offer.

View Article Sources
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    This page allows you to request the most recent snapshot. As of December 2022, that was the October 2022 snapshot.
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  24. Report on the Economic Well-Being of U.S. Households in 2017 — May 2018: Banking and Credit — Federal Reserve Board of Governors
  25. Survey of Consumer Finances (SCF) — Federal Reserve Board of Governors
    The preceding link will take you to an archived copy of the page active when this study was updated. At that time, in December 2022, the 2019 SCF was still the most recent release. To visit the current Federal Reserve SCF page, click here.
  26. The Average Personal Loan Balance Rose 3.7% in 2021 — Experian
    Link is to static archive. Find live page here.
  27. White paper: Fintech Trends — Unsecured Personal Loans — Experian
  28. Working Paper No. 17–17 Fintech Lending: Financial Inclusion, Risk Pricing, and Alternative Information — Federal Reserve Bank of Philadelphia
    In addition to these external sources, readers may find multiple links to helpful SuperMoney pages in the study above.