Wells Fargo & Co. analyst Don Fandetti said consumers have turned to personal loans to consolidate debt and make large one-time purchases amid a reluctance to tap home equity after the credit crisis. For a newer player like Marcus or some fintech companies, it’s easier to offer personal loans than go head-to-head with credit-card lenders, which have an edge in brand awareness, he said.
Personal loans accounted for just 1 percent of the total outstanding consumer balance of $12.9 trillion in the first quarter, according to TransUnion. The lion’s share of consumer debt is from mortgages, at nearly $9 trillion outstanding, followed by student and auto loans. The personal-loan segment is poised to grow further as lenders pull back from areas such as credit cards and auto, Fandetti said.
To be sure, not everyone is piling in. Discover Financial Services is among lenders that have scaled back on personal loans. CEO David Nelms said at a June conference that some fintechs “maybe get a little carried away on pricing and credit.”
But according to TransUnion’s Laky, the influx of players shouldn’t be a problem.
“It’s never unhealthy for the consumer to have more choices,” he said.
This article was provided by Bloomberg News.