TransUnion Expects a Stronger Consumer Lending Market in 2016
The consumer lending market was one part of the financial industry that suffered significantly during the recent recession. As the economy has continued to rebound in recent years, consumer or personal lending, which includes auto and home loans, has also made important strides that reflect an increase in the confidence in the economy. The recent trends in personal lending has indicated that 2016 will be a year that sees a continuation in the popularity of personal lending products.
According to the most recent data available, there were over 27.34 million people with personal loans in the third quarter of 2015, an increase of 18 percent from the third quarter of 2013. The loan balances included $165.46 billion in secured loans and $82.52 billion in unsecured loans.
Personal Lending Industry Benefits from Growth in Average Balances and Low Delinquencies
TransUnion, one of the three premier credit agencies, has released a forecast1 that predicts there will be a steady increase in the balances of secured and unsecured personal loans with minimal change in delinquency rates in 2016. The predictions of the increase in the average personal loan balance and the negligible effects of the rate changes for delinquencies, or those accounts that are more than 60 days past due, are based on a number of different factors. These factors include:
- The prices of homes
- Unemployment rates
- The amount of personal disposable income
- Gross domestic product
More information about recent trends in the personal lending market can be found on many financial blogs, like the blog on PersonalMoneyStore.com.
Secured Personal Loan Balances and Delinquency Data Indicate Continued Progress in 2016
The recent history of the secured personal loan market is a prime example of the effect the recession had on consumer lending. Despite the low risks secured personal loans posed for banks and the favorable interest rates and terms for consumers, the average secured personal loan balance steadily dropped each quarter from the last quarter of 2009 until the third quarter of 2014.
Since the fourth quarter of 2014, there has been a steady rise in the average balances of collateral-backed or secured loans. TransUnion predicts that there will be a 2.83 percent rate of balance growth by the close of 2016. Although this is a decrease from the 3.9 percent growth rate reported for the end 2015, it still indicates that secured personal loan balances continue to rise. According to the TransUnion forecast, the rise in the balances of secured personal loans is due to:
- An average increase in discretionary income
- The reduction of unemployment rates in past few years
- Low rates of delinquencies and defaults
The delinquency rates for secured personal loans are expected to rise by only .06 percent by the end of 2016. This small increase continues the trend of the past five years.
Steady Delinquencies and the Rise in Balances Bolster Outlook for Unsecured Personal Loans
The average balances for unsecured personal loans, or loans that require no collateral and are repaid over one to five years, have increased every quarter since the fourth quarter of 2012. This is attributed to consumers with favorable credit scores who are able to obtain larger loans for purchases or other uses. It is also a result of consumers with all credit backgrounds, including those with less than stellar records, obtaining the loans and maintaining very low rates of defaults.
Even though the average unsecured personal loan balance will continue to rise this year, it will not do so as quickly as it has in the past. TransUnion predicts that the yearly balance growth rate will decrease to 5 percent by the end of 2016, as opposed to 7.1 percent from the end of 2014 to the end of 2015.
The delinquency rates for unsecured personal loans are expected to remain steady at 3.54 percent, despite the growth in balances. This is encouraging news, especially considering the rate is lower than the highest delinquency rate of the recession, which was 4.81 percent in the fourth quarter of 2009.
More information regarding predictions and factors that affect financial lending products can be located on the financial blog at Personal Money Store.