Personal Loans Still Fastest-Growing Debt Type in U.S.
Looking for a personal loan this holiday season? You’re certainly not alone. According to a recent Experian report, personal loans continue to be the fastest-growing type of debt, totaling $305 billion in the second quarter of this year. That marks a 12% year over year increase and a 47% rise from 2015 when personal loan debt stood at $208.5 billion. Additionally Experian found that 11% of Americans now have an active personal loan.
Despite the number of consumers obtaining personal loans rising, the average balance of these loans has actually decreased. Currently the average loan balance is $16,259 with the average monthly payment sitting at $360. On the other hand, Experian notes that the number of loan balances topping $30,000 have increased by 15% over the past five years. Similarly loan balances between $20,000 and $25,000 have grown 10% in that time.
Part of the reason for the increased popularity of personal loans is due to the growing number of online lending options. Over the past four years, FinTechs have gone from holding 22.4% of all unsecured personal loans to 49.4%. Moreover, after FinTech loans hit $45.5 billion last year, it’s expected that they’ll reach $73.7 billion in 2022. Commenting on this trend, Experian’s VP of analytics and business development Michele Raneri explained, “We believe significant changes in the financial profile of FinTech borrowers and an increase in adoption from younger consumers is fueling this growth.”
Despite the rise in personal loans in recent years, they still only account for 2% of U.S. consumer debt in terms of dollar amounts. Understandably mortgages still make up the vast majority of debts, accounting 71.7%. That’s followed by student debt and auto loans — both representing 10.1% of the total consumer debt — with credit cards comprising the final 6.1%.
Looking beyond their actual debt data, Experian also surveyed consumers about why they took out personal loans. Narrowly leading the way (for stated reasons) were large purchases, which 28% of respondents said they used their loans for. Not far behind, 26% reported using personal loans as a means to consolidate their debt. Elsewhere “home improvement” and “refinancing” made up 17% and 9% of responses respectively. Notably 30% of those surveyed said they used their personal loans for another reason that wasn’t listed by Experian.
Given the increasing number of options in the personal loans market, it only makes sense that this type of debt would be on the rise. On the one hand, this could actually be a good thing if consumers are able to save money on interest by using these loans to consolidate debt or viewing them as alternatives to credit cards. Yet, if some are using these loans to make purchases they can’t afford, that’s obviously a negative. With the winter shopping season officially in effect, we’ll have to see whether this trend holds up over the holidays and what it means for debt in 2020.