“That's an increase of 12% year over year—double the growth of credit card debt, the next-highest category.”
The Experian study revealed there are 38.4 million personal loan accounts nationwide — an 11% year-over-year increase from 2018. And while personal loan debt is growing at a faster rate than auto loan, mortgage, credit card, and student loan debt, it accounts for just 2% of total U.S. consumer debt in dollars.
The study indicated that by generations, baby boomers, who carry the second-highest average debt load of all generations, have the highest average personal loan balance at $19,253. Meanwhile, the average personal loan balance for millennials is $11,819.
Consumers in Washington state have the highest average personal loan balance among states at $27,188, while Hawaii holds the lowest average personal loan balance of $12,802.
The top reasons American consumers get a personal loan are for large purchases (28%), debt consolidation (26%), home improvement (17%), and refinancing existing debt (9%).
Once considered a last resort for people trying to escape debt, personal loan balances have surged as fintechs have flooded the market in recent years with unsecured personal loan offers.
"We believe significant changes in the financial profile of fintech borrowers and an increase in adoption from younger consumers is fueling this growth," said Michele Raneri, vice-president of analytics and business development at Experian.
Fintech lending is expected to grow as unsecured personal loans continue to gain popularity; this year fintech loans reached $45.5 billion and are projected to grow to $73.7 billion in 2022.
On this side of the border, competition between traditional financial institutions and fintechs is increasing, but we may not see the same surge in personal loan balances as Canada still lags the average fintech adoption rate globally.
In early October, The Financial Post reported that among consumers who are using traditional financial firms rather than fintechs, the primary reason is “lack of awareness,” followed by trust issues when it comes to upstart financial firms.
“For many of us, the allure is hard to ignore,” CNBC said. “But personal loans do differ in some key ways from other types of credit you might use, such as credit cards.”
It’s important to understand when personal loans are a good idea before “signing on the dotted line.”