Consumer Lending Trends, 2020

Finnegan Pierson

Non- to subprime borrowers make up a majority of the consumer market today. Non-prime borrowers are those with “good” credit scores, while subprime borrowers are those with “fair” to “very poor” credit scores. The score range for these consumers is between 300 and 739. Borrowers who do not fall into the “prime” category may struggle to obtain traditional lending, especially after the market collapse back in 2008. Lenders are more stringent than ever before, and borrowers are much more careful. As a result of this, companies must get creative with their lending solutions if they want to attract the non- and subprime market. And get creative many have.

Lending has drastically changed over the decades, and it continues to do so at a rapid rate. Whereas a decade ago non-prime borrowers struggled to get any sort of funding, many lenders today cater to just this category of consumer. To understand the changes in lending and how they may impact you, you must first seek to understand lending trends. Below are a few worth exploring.

Online Lending Continues To Grow

The rate of origination of online funded installment loans and online single pay loans continues to grow at a rapid rate. According to the data, lenders — which range from pool loan companies to auto loan companies to mortgage lenders — now originate online loans at 7.4 times the rate at which they did in 2014. Installment loans in particular have increased by 30% on an annual basis for the past three years, and the trend doesn’t appear to be slowing any time soon.

Changes in Loan Characteristics

As how loans are originated continue to evolve so too do loan characteristics. Over the past five years, everything from loan amounts to repayment terms to scheduled payments amounts has changed. For instance, original loan amounts are growing. In 2018, just 15% of original online loan amounts were less than $500. In 2014, more than a quarter of all original loan amounts were $500 or less. Since 2014, an increasing number of lenders are making loans of between $500 and $1,000 the standard, with loans of more than $2,000 the second most common amount.

In 2016, 2017 and 2018, lenders tried to shorten the repayment period. During those three years, approximately 40% of lenders offered repayment periods of between seven and 12 months. Nearly 50% of lenders, however, preferred repayment periods of less than six months. In 2018, 62% of lenders offered repayment terms of over seven months.

Scheduled monthly payment amounts have also been on the decline. In 2015, only 17% of online installment loans had a schedule repayment amount of less than $200. In 2018, that percentage increased to 34%. This aligns with longer repayment terms, thereby making loans much more affordable for the non-prime borrower.

Plastic Still Prevails

Though the market collapse deterred individuals from credit for a while, it wasn’t long before consumers started swiping plastic again. More consumers than ever are carrying credit card balances these days. In fact, the average American consumer has at least four credit cards and carries a revolving credit card balance of $6,849. This is in large part because more lenders are extending lines of credit to non-prime borrowers. However, to be fair, lenders are monitoring credit limits more closely, and ensuring that those with fair to poor credit ratings receive only a small limit and on a secured basis.

Origination of Online Unsecured Personal Loans Increase  

The unsecured personal loan market is growing at an annual rate of 20% in the United States. This is the result of increased demand. Millions of Americans face unexpected expenses on a daily basis. Car repairs, medical expenses, home improvement tasks and debt consolidation are all propelling consumers to seek funds on a same-day basis. The most innovative lenders are able to deliver by underwriting applications and depositing funds within 24 hours.

The lending market is ever evolving. These days, it seems to be evolving in consumers’ favor.