Next Wave of Personal Loan Growth May be Driven by Prime and Above Consumers
CHICAGO, April 09, 2019 (GLOBE NEWSWIRE) -- Lenders have another opportunity to capitalize on further growth in the personal loan market. After hitting several record milestones in 2018, a new TransUnion analysis released at LendIt 2019 found that the personal loan origination mix is shifting to prime, prime plus and super prime consumers with lenders expanding into these risk tiers to garner more market share.
The prime and above risk tiers have become a greater focus for lenders in recent years. Nearly two-thirds of unsecured personal loan balances originated in the first three quarters of 2018 were lent to prime and above consumers. FinTechs drove this shift as originations for prime and above grew to 62% in 2018, up from 52% in 2013. While still less conservative than banks, FinTechs’ overall risk profile for originations now aligns tightly with credit unions. At the end of 2018, FinTechs held the majority share of personal loan balances with 39%, while banks and credit unions followed with 28% and 21%, respectively.
“FinTechs have helped shape personal loans into a mainstream financial product. More and more consumers with good credit are open to the idea of using a personal loan for debt consolidation, home improvement financing or at point-of-sale,” said Jason Laky, senior vice president and consumer lending business leader at TransUnion. “We are seeing a transformation in the way consumers conduct transactions and utilize credit, with many now opting for an unsecured installment loan versus a credit card or home equity loan.”
Distribution of Unsecured Personal Loan Dollar Originations by Lender Type (Q1-Q3 2018)
Traditional Risk Tiers All Lenders Bank Credit Union FinTech Finance ---------- ----------- ---- ------------ ----------- ------- Prime and Above 66% 79% 62% 30% 62% ---------- ----------- ---- ------------ ----------- ------- Below 34% 21% 38% 70% 38% Prime ---------- ----------- ---- ------------ ----------- -------
*VantageScore 3.0 risk ranges: Below Prime: Subprime= 300-600; Near prime= 601-660; Prime and Above: Prime= 661-720; Prime plus= 721-780; Super prime= 781-850
As unsecured personal loans grow in popularity, prime and above consumers are choosing these loans for financing larger purchases and projects, such as home renovations. As a result, average origination amounts have grown over the past few years, led by super prime and followed by the prime plus and prime risk tiers. This growth helped drive personal loan balances to an all-time high, reaching $138 billion at the close of 2018.
While the number of consumers with a personal loan has continued to grow steadily, market penetration is relatively low in comparison to other types of credit. Nineteen million consumers – a record for the category – had a personal loan in 2018, or roughly 7% of credit active consumers, up from 5% in 2017. Credit cards, on the other hand, are held by 63% of consumers.
“This suggests the personal loan market has much room to expand, even after the strong growth we’ve seen over the past five years,” added Laky. “As more consumers in the prime and above risk tiers become active in this market, we predict personal loans to continue an upward growth trajectory throughout 2019.”
The data cited in the analysis was obtained from the TransUnion database. For more consumer and credit insights on the personal loan market, sign up for a demonstration with TransUnion’s Prama suite of solutions.
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