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Consumer loans fall into three broad categories: Debt Consolidation, Home Renovation Financing and Retail Trade, thanks to the rise of e-commerce and online shopping, said Laky.
An unsecured personal loan does not require the borrower to offer a guarantee. Financial technology companies such as SoFi, LendingClub, Prosper, Avant and GreenSky offer digital or mobile options, which often use data points outside FICO scores to badess creditworthiness. Square and PayPal use similar measures.
But they tend to go further down the credit curve, raising questions about the number of people who resist during their first-ever economic downturn.
By 2018, most of the growth was at the lower end of the risk spectrum. The subprime segment experienced the fastest growth at 4.3% year-over-year, according to TransUnion. Any risk inherent in these risky loans is closely tied to the economy's performance, Laky said.
"At-risk borrowers are those who, in the event of a downturn in the economy and slower growth, risk losing their jobs or their hours of work, which creates financial stress," Laky said. "As long as we think the economy is still on the path to growth, there should not be a problem."
He highlighted a constant late payment rate, a sign that the growth of subprime loans does not signal an imminent credit crisis. Outstanding payments "have remained stable with little or no change in most risk levels," according to the report.
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