Fintech companies were mostly responsible for the boom in the unsecured personal loan market, which surged by 17% year over year to reach a record high of $138 billion last year, revealed by a report by TransUnion.
In 2018, fintechs issued 38% of all personal loans by Americans, which is higher compared to 35% a year earlier. Meanwhile, the market share of traditional banks is down to 28% from 40% in 2017. Loans from credit unions also declined to 21% from 31% in the same period.
The report also found the average unsecured personal loan debt for every borrower was $8,402. It also revealed that fintechs compete well with banks as both lenders are issuing loans averaging in the $10,000 range, which is higher than $5,300 for credit unions.
Jason Laky, TransUnion’s senior vice president and head of consumer lending division, believe fintechs lending was instrumental in making personal loans an easy and simple alternative to get funding online. Most of them use their borrowed money for debt consolidation, home improvement project or payment for an online purchase, Laky added.
Lenders that issue unsecured personal loan do not obligate borrowers any collateral. Many fintech firms like LendingClub, SoFi, and Prosper offer digital options that usually use data points aside from FICO credit scores when finding out their creditworthiness.
Most of the growth came from subprime borrowers tier, whose loans grew the fastest at 4.3%. These borrowers are the most likely to lose their jobs or hours. However, Laky said that as long as the economy remains in its stable growth path, the rise of loans from this section is not an issue.