Americans had $232 billion in outstanding unsecured personal loans in the second quarter of 2023, according to the Federal Reserve Bank of New York’s Community Development team.
Looking at data from TransUnion from 2017 through 2023, the researchers found that more than 22.7 million American borrowers had unsecured loans, most of them from fintech lenders to consolidate debt. In their brief, “The Role of Fintech in Unsecured Consumer Lending in Low- to Moderate-Income Individuals,” the researchers found that over the past decade, fintech firms have introduced unsecured consumer loan products for short-term credit needs, and provided them to low- and moderate-income consumers who traditionally lacked access to those types of products from banks and other traditional finance institutions. Instead, those consumers generally rely on expensive products like payday loans and bank overdraft protections.
The report found that using alternative data to assess creditworthiness, fintech firms have expanded the pool of borrowers for unsecured consumer loans.
As a result, unsecured personal loan originations have increased, the report found, up $40 billion between Q2 2022 and Q2 2023. Personal loan balances rose for all risk tiers, but saw the highest growth rates in the below-prime credit score ranking sector. At the same time, delinquencies for unsecured consumer credit products increased in the second half of 2022, staying steadily above pre-pandemic levels throughout 2023.
Additionally, researchers found, the rising cost of capital, as well as the increased costs of living have led to a decline in fintech-originated personal loans, with many fintech firms shifting to non-credit offerings like cash-flow management and savings apps instead.