Consumer Lending Trends, Then & Now: 4 Loan Types Examined
As we move into a new year, many companies are reflecting on industry trends to make projections for the future. Although the changing economic landscape has impacted a number of industries, the consumer lending sector has perhaps witnessed the most significant changes over the past ten years. In this post, we’ll look at four loan types for consumer loans to identify changing trends in the way consumers borrow money.
Student loans are an increasingly significant factor when it comes to consumer borrowing and spending behavior, especially among millennials. According to a study from research group TransUnion, student loans have more than doubled in terms of loan balance among consumers in their 20s in the past ten years. In 2005, student loans accounted for 12.9% of the total loan balance for consumers 20-29 years old; by 2014, they accounted for 36.8%. As a result, millennials today are more hesitant to take on additional loans (such as a mortgage) due to the burden of their student loans.
The small-denomination, short-term credit loan industry — most commonly referred to as the “payday loan” industry — has seen rapid growth since its birth in the 1990s. According to the Community Financial Services Association of America, today there are an estimated 20,600 payday advance locations across the U.S. which extend about $38.5 billion in short-term credit. Only 3.5% of American homes had As this industry continues to rely on subprime consumer credit, it has faced increasing regulation from state and local governments. Today, many states place a cap on the loan and fee amount allowed by payday loan companies.
In the digital era, new platforms allow consumers to sidestep brick-and-mortar banks and financial institutions and opt for online peer-to-peer lending platforms instead. Websites such as Lending Club and Prosper allow consumers to borrow and invest money in minutes; since 2007, these two companies have loaned more than $6 billion. These platforms enable everyday people to become investors, and are generally considered a solid investment with a reasonable amount of risk. Because most peer-to-peer platforms are focused on prime consumer credit, returns have been stable and positive. Also, the emergence of crowdfunding — a different, but related industry — has expanded consumers’ ability to invest and raise money in a new way.
The home loan industry has undergone significant shifts over the past decade due to the Great Recession, especially among young and first-time homeowners. The increasing burden of student loans over the past eight years,coupled with the housing market crisis, resulted in drastic changes in the mortgage industry. In 2005, 11% of consumers ages 18-30 had a home loan; in 2015, only 7% of consumers ages 18-30 have a home loan.
However, the future of the home loan industry is looking positive. Signs like the Federal Reserve’s recent interest rate increase, coupled with low gas prices and decreasing unemployment rates in 2015, suggest increasing stability and growth in the U.S. home loan sector today.