There has been a confluence of events to set the stage for the disintermediation of retail banking – and the continued lending growth facilitated by online platforms.
LendingClub’s head of financial health, Anuj Nayar, said regulations have been updated, connectivity has improved, and everyone has computing power on their desk or in their pocket.
As a result, personal loans will be adopted by cash-strapped consumers, yes, but even by individuals and families with healthy incomes.
Going forward, Nayar said, the demand for personal loans (currently used by 24% of the general population) is expected to increase. We may have, collectively as a society, saved money during the pandemic, but the savings are reopening, so that the main drivers of credit spending (which would be consumption) are returning to positive territory. When people take on more debt, they end up taking out personal loans even more often in an attempt to manage their cash flow.
The conversation took place against a backdrop where the latest iteration of the Paycheck-To-Paycheck reality check report found that 32% of Millennials and Bridge Millennials who live paycheck to paycheck to paycheque use personal loans.
Read more: Living Paycheck to Paycheck triggers a personal loan request
That’s a higher rate than what we see in other age groups, but Nayar said “it’s no surprise” that millennials are turning to these loans.
As he noted, this generation has been “stuck in the last two major recessions.” They graduated from high school just after the 2001 recession and then faced the Great Financial Crisis and subsequent major recessions in the early years of their working lives and into the most earning years. high in their early thirties.
Running out of money and getting into debt
Along the way, they took on a lot more debt, Nayar said. College costs have led to high student loans, and the average millennial has over $ 27,000 in personal debt, excluding mortgages, credit card debt, installment loans and beyond.
Thus, they apply for personal loans with the aim of reaching new stages in their life – when they get married, start a family or buy a house. With the pressure of being the “sandwich generation” and caring for children while caring for aging parents, millennials are finding help in personal loans.
This does not mean that only young people borrow. The same report found that 57% of personal loan users have no difficulty meeting their financial obligations.
As Nayar said, personal loans have become a “standard financial tool for fighting debt and managing cash flow so they can do things like plan for the unexpected and build a savings cushion.”
Most Americans, he said, have less than $ 2,000 in savings, and only one event – a medical emergency, a car accident, or the need to send money to a limb. family – can destroy that cushion.
Thus, consumers take out these personal loans to get out of debt, such as credit card loans, consolidating these debts in order to pay them back or pay them back. This frees up capital to build up cash buffers (quite useful).
“It can help if you don’t have to remember all of those different due dates to pay off all the different debts that have accumulated over the years,” Nayar said.