Personal Loans Market

Personal Loans Market Overview-

Personal loans refer to unsecured loans that borrowers can obtain from financial institutions, including banks, credit unions, and online lenders. Personal loans are usually used to consolidate debt, cover emergency expenses, or finance large purchases. The personal loans market has grown rapidly in recent years due to the ease of access and the flexibility of these loans.

Market Size and Market Share-

personal loans market is projected to reach ~$1,820.99 billion by 2027, growing at a CAGR of +6% from 2020 to 2027

The increasing demand for personal loans due to their easy availability, low interest rates, and flexible repayment options are driving the growth of the market.

In terms of market share, banks and credit unions are the dominant players in the personal loans market. They accounted for approximately 70% of the total market share in 2020. However, online lenders and fintech companies are rapidly gaining market share due to their innovative products and services and their ability to offer personalized loan products to customers.

Key Players-

• AMERICAN EXPRESS
• AVANT
• LLC
• BARCLAYS PLC
• DBS BANK LTD
• GOLDMAN SACHS
• LENDINGCLUB BANK
• PROSPER FUNDING LLC
• SOCIAL FINANCE
• TRUIST FINANCIAL CORPORATION
• WELLS FARGO

Segmentation-

By Type

• P2P MARKETPLACE LENDING
• BALANCE SHEET LENDING

BY AGE

• LESS THAN 30
• 30-50
• MORE THAN 50

BY MARITAL STATUS      

• MARRIED
• SINGLE
• OTHERS

BY EMPLOYMENT STATUS          

• SALARIED
• Male
• Female
• Others
• BUSINESS

Major Trends and Drivers Affecting the Industry-

There are several major trends and drivers affecting the personal loans industry, including:

Digitalization - The increasing use of digital technology in the lending process has made it easier for customers to apply for loans and for lenders to process applications quickly and efficiently.

Personalization - Fintech companies are offering personalized loan products to customers based on their creditworthiness and financial needs, which is attracting a new segment of customers to the personal loans market.

Rising Debt - The increasing levels of debt among consumers, including student loans and credit card debt, are driving the demand for personal loans as a means of consolidating debt and managing payments more effectively.

Economic Growth - Economic growth and low unemployment rates have boosted consumer confidence and spending, leading to increased demand for personal loans.

Low Interest Rates - Low interest rates have made personal loans more affordable for consumers, making it an attractive option for those looking to finance large purchases or consolidate debt.

Opportunities and Threats in the Industry-

The personal loans industry presents several opportunities and threats, including:

Opportunities:

Increasing demand for personal loans due to the growing need for debt consolidation and other financial needs.

The growing use of digital technology in the lending process is making it easier for consumers to apply for loans and for lenders to process applications quickly and efficiently.

The increasing adoption of online lending platforms and fintech companies is creating new opportunities for lenders to expand their customer base and offer innovative loan products to consumers.

Threats:

Increasing competition from online lenders and fintech companies is putting pressure on traditional lenders to innovate and adapt to changing customer needs.

Increasing levels of debt among consumers may lead to higher default rates, which could negatively impact lenders' profitability.

Regulatory and Legal Issues Affecting the Industry-

The personal loans industry is subject to various regulatory and legal issues. One of the main concerns is the potential for predatory lending practices, which can trap consumers in debt cycles with high-interest rates and hidden fees. To address these concerns, the Consumer Financial Protection Bureau (CFPB) has implemented regulations on payday and short-term loans, including requirements for lenders to assess borrowers' ability to repay the loan and restrictions on loan rollovers.

Another regulatory issue facing the personal loans industry is the potential for discrimination in lending practices. In 2013, the CFPB issued guidance to lenders on avoiding discriminatory practices in underwriting and pricing loans. However, there have been concerns about disparities in access to credit and pricing among different demographic groups.

Target Demographics and Preferences-

The target demographics for personal loans vary depending on the lender and the type of loan product. Generally, personal loans are marketed towards individuals with good to excellent credit who are seeking to consolidate debt, finance large purchases, or cover unexpected expenses. However, there are also lenders who cater to borrowers with lower credit scores or no credit history.

According to a report by Experian, the average personal loan borrower is 35 years old, has a credit score of 670 or higher, and has an annual income of $70,000 or more. The report also found that the most common reasons for taking out a personal loan were debt consolidation, home improvements, and medical expenses.

Preferences and behaviors among personal loan borrowers also vary. Some borrowers prefer traditional lenders, such as banks and credit unions, while others prefer online lenders for their convenience and speed. Additionally, some borrowers prioritize low interest rates and fees, while others prioritize flexible repayment terms and loan amounts.

Pricing Trends Across Different Segments-

The pricing of personal loans varies depending on the lender, the borrower's creditworthiness, and the type of loan product. Generally, personal loan interest rates range from around 5% to 36% APR, with the average rate falling between 10% and 20%. Factors that may affect pricing include the borrower's credit score, income, and debt-to-income ratio.

Personal loan pricing trends also vary across different segments of the market. Traditional lenders, such as banks and credit unions, may offer lower interest rates to borrowers with good credit and established banking relationships. Online lenders may offer higher interest rates but may also offer more flexible repayment terms and faster funding. Additionally, there are lenders who specialize in loans to borrowers with lower credit scores or no credit history, but these loans may come with higher interest rates and fees.

Overall, the personal loans market is expected to continue to grow in the coming years, driven by increasing demand for debt consolidation and other financial needs. However, regulatory and legal issues, as well as increasing competition from online lenders and fintech companies, may present challenges for traditional lenders. To remain competitive, lenders will need to innovate and adapt to changing customer preferences and behaviors, while also maintaining compliance with regulatory requirements.