Consumer loans fell into three main categories: debt consolidation, home improvement financing, and retail thanks to a surge in e-commerce and online shopping, Laky said.
An unsecured personal loan does not require the borrower to put up any collateral. Fintech firms like SoFi, LendingClub, Prosper, Avant and GreenSky offer digital or mobile-first options that often use data points aside from FICO scores when assessing creditworthiness. Square and PayPal use similar metrics.
But they tend to reach further down the credit curve, raising questions about how many would fare in their first-ever economic downturn.
In 2018, most of the growth was at the lower end of the risk spectrum. The subprime tier grew the fastest at 4.3 percent year over year, according to TransUnion. Any inherent risk in those subprime loans is tied closely to the outcomes of the economy, Laky said.
“Subprime borrowers are the ones that, if the economy turns and growth slows, are likely to be at risk of losing their jobs or hours, that creates financial stress,” Laky said. “As long as we believe [the] economy is still on solid path of growth, there shouldn’t be an issue.”
He said a steady rate of delinquencies is a sign that growth in subprime loans does not signal an impending credit crisis. Delinquencies “have remained stable with little to no change across most risk tiers,” according to the report.