Unsecured personal loans continue to hold the place as the fastest-growing form of consumer lending in the U.S., with the total balance expected to reach $180 billion in 2020, according to 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 the personal loan, previously considered a last resort for escaping debt, become mainstream in a time span of just a few years?
The rapid growth of personal loans
Looking at debt in total, the balance of personal loans owed in the U.S. has more than doubled in recent years, from $72 billion in 2015 to an all-time high of $156 billion in 2019. TransUnion also predicts that the total balance will increase with an extra $24 billion in 2020. In other words, personal loans are still growing rapidly in the U.S.
A distinctive advantage of a personal loan, and a main reason for its popularity, is the flexibility. An unsecured personal loan can be used for just about anything. The choice lies entirely with the borrower, unlike mortgages.
Personal loans for debt consolidation
Despite the endless possibilities, a survey taken by LendingTree found that more than 65% of the people surveyed planned on using their loan to manage debt – either for debt consolidation or credit card refinance. According to TransUnion, this will be one of the key driving factors for the continued growth of personal loans in 2020.
The trend of using personal loans for debt consolidation can also be found in other countries with high public debt. In the UK, debt consolidation loans have become increasingly popular and in Sweden, data shows that a majority of borrowers take out a Swedish personal loan for the purpose of consolidating credit card debt and payday loans.
The emergence of Fintech lending
Another thing fueling the growth of personal loans is the rise of fintech lenders in the last decade. By the end of 2018, fintech loans accounted for 38% of total loans compared to only 5% in 2013, according to TransUnion.
Through technology, fintech lenders have made it possible for borrowers to complete the entire loan application process online, from the comfort of their home – instead of having to go to the bank and talk to an actual person. This have made personal loans more accessible to consumers, thus playing a huge part in the record increase.