It appears that the latest financial trend among US citizens is getting personal loans. This is by far one of the easiest ways of obtaining some quick cash they can use to pay for basically anything, whether we’re talking about vacations or even credit card debt.
But it’s far from being goods news! On the contrary, it can turn into a real red flag for the economy!
According to a report from Equifax, personal loans grew with up 10 percent over the past year, which is a quick growth pace! Even more, the top three consumer credit agencies in the United States – Equifax, alongside Experian and TransUnion – reported a double-digit market growth over the past few months.
This entire situation also comes as a big surprise for experts, as a lot of them are surprised to see a significant amount of citizens taking on so many personal loans and generating debt. In fact, what makes this even more surprising is that it happens in a moment when the economy looks on its way up, while paychecks are getting bigger for many workers.
So why are people looking for extra cash?
“Definitely yellow flares should be starting to go off,” admitted Mark Zandi, chief economist for Moody’s Analytics. “There’s an old adage in banking: If it’s growing like a weed, it probably is a weed.”
The average loan keeps growing
Simply put, personal loans are unsecured debt. This means that they’re not backed up by assets like a home or a car, in case someone cannot repay one. On average, the personal loan an American gets is $16,259, according to Experian. And this level is very similar to credit card debt.
However, what’s really worrying is that in the past five years, the total amount of loan balances over $30,000 has grown by 1 percent. This is another warning sign, as this trend comes as US consumer debt has reached new record levels, according to a source from the Federal Reserve Bank of New York.
What are the reasons behind this?
Surprisingly or not, this rapid growth of personal loans has coincided with the increasing popularity of fin-tech companies, as well as websites that have made getting loans easier. As a matter of fact, fintechs account for almost 40 percent of personal loan balances. And as a side note, it was just at 5 percent, back in 2013.
“You can get these loans very quickly and with a very smooth, sleek experience online,” said Liz Pagel, TransUnion’s senior vice president of consumer lending. “We haven’t seen major changes like this in the financial services landscape very often.”
Right now, there’s a general concern that a lot of US citizens who opted for personal loans did it to just tide them over and continue taking on more credit card debt, for example.
Even though the general attitude towards personal loans remains mixed, it appears that their popularity is only going to stop when the economy will eventually be seriously affected.