Unsecured personal credit continues to be the fastest growing form of consumer credit in the U.S., with the total balance estimated at $ 180 billion in 2020 TransUnion. That’s a 150% increase in just five years from $ 72 billion in 2015. What is the reason for this surge in popularity? How did personal credit, once considered the last resort to evade debt, become mainstream within a few years?
The rapid growth of personal loans
Looking at total debt, the US balance of personal loans owed has more than doubled in recent years, from $ 72 billion in 2015 to an all-time high of $ 156 billion in 2019. TransUnion also forecasts that that total balance with an additional $ 24 billion in 2020. In other words, personal loans are still growing rapidly in the US
A key benefit of a personal loan, and a major reason for its popularity, is flexibility. An unsecured personal loan can be used for almost anything. The choice is entirely up to the borrower, as opposed to mortgages.
Debt Consolidation Personal Loans
Despite the endless possibilities, a survey of Credit tree found that more than 65% of respondents planned to use their loan to manage debt – either debt consolidation or credit card refinancing. According to TransUnion, this will be one of the most important drivers for further growth in personal lending in 2020.
The trend towards using personal loans to consolidate debt can also be observed in other countries with high levels of public debt. In the UK, debt consolidation loans are becoming increasingly popular, and in Sweden, the data shows the majority of borrowers are taking them Swedish personal loan for the purpose of consolidating credit card debt and payday loans.
The advent of fintech loans
Another factor driving the growth of personal loans is the rise of fintech lenders over the past decade. At the end of 2018, fintech loans made up 38% of total loans, according to TransUnion, compared to just 5% in 2013.
Thanks to technology, fintech lenders have enabled borrowers to complete the entire loan application process online from the comfort of their own home – instead of having to go to the bank and speak to a real person. This has made it easier for consumers to access personal credit, making a major contribution to the record increase.