Americans Have Taken a Record-Breaking number of Personal Loans in 2018

Private Debt has been burgeoning in 2018 and while some say that credit is spinning out of control, there are different scenarios playing out there. One theory is that there is little investment in business or industries and hence the growth in personal loans which have become more trendy than ever before.

In fact, personal loans have risen to one of the highest peaks in the US, with Americans holding $125 billion in any kind of personal loan in 2018. That is a tremendous leap from $76 billion in 2015. Personal loans comprise the fastest developing consumer-lending kind in the U.S., easily exceeding the growth of credit cards, auto loans and even mortgages, according to an analysis by TransUnion.Why this recent spurt in personal loans? Maybe it’s time we took a closer look.

36% of Loans go to Online Lenders

In simple terms, all of us are immensely attracted to the convenience of getting small loans online, without lengthy cumbersome procedures, spread out over many bank visits personally and spreading over many weeks. Nowadays if you need a hand-loan, you go online, type in your financial information and within a matter of minutes you can find out how much money on loan you can access and the interest rate to be charged. This ease of securing loans has been directly responsible for the growth spurt in the personal loans sector of credit growth.

Earlier you would have to physically go to your bank branch, fill out an application form or wait on hold to find out if you even eligible for the loan amount needed and then negotiate interest rates and terms of loan repayment before the loan was sanctioned. A long, cumbersome and taxing procedure!

‘Fintech’ or Innovative financial technology companies are now driving growth in the personal loans market, as revealed TransUnion’s data and research. Online loan marketplaces have opened up and peer-to-peer loaning platforms have come up to shake up the game by offering quick and relaxed credit terms. The personal loans game rules have changed considerably over a short span of time, as will be clear from the following statements:

• Fintech companies originated over 35% of all personal loans in USA in 2017, compared with 2010, it was less than 1% back then. That is certainly a huge change over seven years.
• The aggregate balance of all personal loans taken out in the US rose to the massive sum of $125 billion in 2018, it recorded an 18% jump from 2017.That is another massive rise!

1 in every 17 Americans now bears a Personal Loan

As mentioned before, you can access these loans relatively anonymously and that adds to why they are so popular with the masses. It’s far less daunting than walking into a financial institution, sitting across from a banker who asks very pointed questions and then having to deal with the pressure of waiting to find out if your loan proposal has been approved. It is very awkward to sit facing a stony-faced personal banker who informs you, very matter-of-factly that the bank is unable to approve your loan. Today the ease of doing business has changed as roughly 6% of American consumers have open personal loans, as per TransUnion’s data. That is about 1 in every 17 Americans!

Why this staggering amount of loans?

Some experts opine that, in an era of rising costs, rising underemployment and sluggish wages, more number of people are forced to resort to seeking personal loans because they have no other option. It’s their best survival strategy. Simply put, the common people are overextended and have no margin available in their finances and are faced with unexpected expenses, there is no cushion available. Between house payments, educational loans for their children and in many cases for themselves, medical expenses for aged parents and steep increase in health insurance premiums, the average person needs more funds for pressing needs while wages are yet to keep up with inflation.

Other experts have different views, believing that personal loans are more popular due to the freedom they offer borrowers over end-use of loans. Most borrowers, wary of debt arising out of credit card usage, which lingers for years at end, are attracted by the personal loan’s ironclad re-payment schedule, ranging from 36 to 60 months. Borrowers have to stick to the prescribed timelines if they want to get rid of their snowballing debt, and that in itself can be a great motivating factor for making repayments on time. More consumers today see value in personal loans, whether for home improvement finance or debt consolidation. Personal loans are now not confined to consumer purchases and new business avenues are opening up. So can we expect the trend to continue in the coming years? We wait and watch…