The rate of borrowers using loans for debt management drops; growing proportion of borrowers use loans for new purchases
Most people who take out personal loans do so to help manage their pre-existing debt. That is true of all borrowers, no matter the lender involved. LendingPoint is no exception. The majority of our borrowers tell us they intend to use their loans to pay off outstanding balances with multiple creditors — student loans, credit cards, or short term, small dollar advances for example — and then repay the one loan in fixed monthly payments. It’s a practice known as “debt consolidation.” So, when our latest Data Lab analysis unearthed a shift in this long-standing trend, we took note. It turns out that, over the past two years, the proportion of our borrowers who say they are earmarking their loans for debt consolidation has decreased markedly, from about 60% in 2017 to about 54% in 2018. The percent using loans to pay for new merchandise or services has grown during those two years. Home improvement jumped from 6% to 8%; loans for medical expenses rose from 2% to 7%. This suggests there’s a potential sea-change underway in how personal loans fit into people’s budgets and financial lives. They’re evolving from debt-management tools to credit sources for new purchases that may have previously been paid for by other means. Millennials are at the forefront of this shift. In 2017, the percent of millennial consolidators was about 61%. In 2018, that dropped a full 10%, down to 51%, a bigger decrease than any other age cohort. At that rate, non-consolidators will be the majority of our millennial borrowers this year. That would be a first. A few potential contributing factors:
- Credit cards may be less popular among all consumers, but particularly among millennials. That means other types of credit, including personal loans, fill the gap.
- Personal loans are more ubiquitous and readily available than ever, in large part because of the growth of FinTech lenders like LendingPoint over the past decade, making loans a viable option to credit cards for paying regular bills.
- Cultural shifts drive demand for certain types of big-ticket purchases, prompting people to seek out funding. This is true of the popularity of home improvement TV shows sparking people to take on their own home remodel projects, as American Banker recently reported, which contributes to the demand for the use of personal loans for that purpose.
The following table summarizes the percent of loans extended for all use cases in 2017 and 2018, overall and by age.
|Percentage of reported loan usage by age cohort in 2017||Percentage of reported loan usage by age cohort in 2018|
*did not include taxes and funerals, both of which are less than 1% of total loans in each year
About LendingPoint Data Lab:
The LendingPoint Data Lab analyzes data, from both LendingPoint’s own business and from third party sources, to unearth trends and insights into Americans’ borrowing behavior.
For this study, the LendingPoint Data Lab analyzed the loan applications of individuals to whom the company extended personal loans in 2017 and 2018. LendingPoint borrowers provide the intended use of the loan when they apply, from a menu of options LendingPoint provides. LendingPoint categorizes those into eleven use cases.
An individual’s age factors neither into their creditworthiness nor LendingPoint’s decision to extend a loan to them.