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Unsecured Loans - US - March 2016

"As with other areas of financial services, technology is bringing about radical change in the unsecured lending arena. P2P (peer-to-peer) lenders are challenging traditional lenders with their lower interest rates, online capabilities, and easy access to funds. The target markets for P2P lenders are the segments all lenders want most – Millennials and high-income earners – and there are signs that they are making inroads into those markets. While consumers trust banks more than P2P lenders, they are listening to new lenders, and traditional lenders are scrambling to offer P2P benefits without compromising the advantage they have in the trust department."
- Robyn Kaiserman, Senior Financial Services Analyst

This report discusses the following key topics:

  • Rising interest rates
  • Millennials are wary of credit

For the purposes of this report, Mintel has used the following definition:

  • Unsecured loan: A loan that is issued and supported only by the borrower's creditworthiness, rather than by a type of collateral. An unsecured loan is one that is obtained without the use of property as collateral for the loan. Borrowers generally must have high credit ratings to be approved for an unsecured loan. Unsecured loans are also referred to as signature loans or personal loans.
  • Secured loan – A loan that is secured by collateral, such as a house or car – is not considered in this report.

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Table of contents

  1. Overview

    • What you need to know
      • Definition
      • Executive Summary

        • The issues
          • Rising interest rates
            • Figure 1: Effective federal funds rate, Jan. 1, 2007-Jan. 1, 2016
          • Millennials are wary of credit
            • Figure 2: Attitudes toward debt, by generation, December 2015
          • The opportunities
            • Interest rate is key in choice of lender
              • Figure 3: Reason for choosing lender, December 2015
            • P2P lending has only just begun
              • Figure 4: Have P2P debt, by generation, December 2015
            • Partnering with P2P lenders can benefit banks
              • Figure 5: Attitudes toward borrowing, December 2015
            • What it means
            • The Market – What You Need to Know

              • Total debt is trending up
                • Consumers are paying down credit card balances
                  • Student loan balances continue to grow
                    • Rising interest rates make borrowing less attractive
                      • Income is down
                      • Market Size

                        • Total debt is trending up
                          • Figure 6: Total US consumer debt, Q3 2010-Q3 2015
                      • Market Breakdown

                        • Consumers are paying down credit card balances
                          • Figure 7: Credit card data*, Q3 2010-Q3 2015
                        • Credit card delinquency rates are down
                          • Figure 8: Credit card delinquency rates, Q3 2010-Q3 2015
                        • Student loan balances continue to grow
                          • Figure 9: Student loan balances, Q3 2010-Q3 2015
                      • Market Factors

                        • Rising interest rates make borrowing less attractive
                          • Figure 10: Effected federal funds rate, Jan. 1, 2001-Jan. 1, 2016
                        • Income is down
                          • Figure 11: Median US income, 2005-14
                        • Increase in college expenses
                          • Figure 12: Average tuition and fees, selected years 1975-76 through 2015-16
                      • Key Players – What You Need to Know

                        • P2P lending is growing and disrupting the marketplace
                          • Big financial institutions are gearing up to fight
                            • Millennials don’t like debt
                              • Institutions are taking over P2P loans
                                • Point-of-sale loans
                                  • Alternative lending models
                                  • What’s Working?

                                    • P2P lending is growing and disrupting the marketplace
                                      • Lending Club
                                        • Figure 13: Lending Club online ads, 2015, 2016
                                        • Figure 14: Lending Club direct mail ad, 2015
                                      • SoFi
                                        • Figure 15: SoFi email ad, January 2016
                                        • Figure 16: SoFi mobile ads, 2016
                                    • What’s Struggling?

                                      • Big financial institutions are gearing up to fight
                                        • Millennials don’t like debt
                                          • Figure 17: Attitude toward debt, by generation, December 2015
                                      • What’s Next?

                                        • Institutions are taking over P2P loans
                                          • Point-of-sale loans
                                            • Alternative lending models
                                              • Goldman Sachs is building its own platform
                                              • The Consumer – What You Need to Know

                                                • Credit card debt is most popular type of unsecured debt
                                                  • Millennials’ lending activities
                                                    • They have the most installment debt, a little less credit card debt
                                                      • Millennials research and apply online
                                                        • Millennials are in a quandary about credit cards
                                                          • Millennials’ and high earners are challenges for P2P lenders
                                                            • Interest rate is the most important factor
                                                              • Existing relationships are most important to older consumers
                                                                • Relatively few consumers have less debt now than a year ago
                                                                  • Many borrowers make more than the minimum monthly payment
                                                                    • Most are uncomfortable with debt, but realize they need it
                                                                      • Most have solid credit scores
                                                                      • Who Has Unsecured Debt?

                                                                        • Credit card debt is most popular type of unsecured debt
                                                                          • Figure 18: Type of unsecured debt carried, December 2015
                                                                        • Young women have more student loans
                                                                          • Figure 19: Have student loans, by gender and age, December 2015
                                                                        • Millennials have the most installment debt, a little less credit card debt
                                                                          • Figure 20: Type of unsecured debt carried, by generation, December 2015
                                                                        • Parents are more likely to have unsecured debt than non-parents
                                                                          • Figure 21: Type of unsecured debt carried, by parental status, December 2015
                                                                        • Payday loans are more popular among high earners
                                                                          • Figure 22: Consumers with payday loans, by household incomes, December 2015
                                                                      • Purpose of Unsecured Loans

                                                                        • Most get a bank or credit card loan to buy a car
                                                                          • Figure 23: Purpose of unsecured loan, by type of loan, December 2015
                                                                        • Low-income earners and parents use bank loans for bills
                                                                          • Figure 24: Purpose of unsecured loans, by household income and parental status, December 2015
                                                                      • Important Factors in Choosing a Lender

                                                                        • Interest rate is the most important factor
                                                                          • Figure 25: Most important factors in choosing lender, December 2015
                                                                        • And interest rates matter most to Gen X and Baby Boomers
                                                                          • Figure 26: Most important factors in choosing lender, by generation, December 2015
                                                                        • Existing relationships are most important to older consumers
                                                                          • Figure 27: Most important factors in choosing a lender, by generation, December 2015
                                                                        • Hispanics are concerned about cash flow and credit score
                                                                          • Figure 28: Most important factors in choosing lender, December 2015
                                                                      • Online Loan Activities

                                                                        • Millennials research and apply online
                                                                          • Figure 29: Online loan activities, by generation, December 2015
                                                                        • Parents are more likely to go online
                                                                          • Figure 30: Online loan activities, by parental status, December 2015
                                                                      • Loan Management

                                                                        • Men and Whites have less debt now than a year ago
                                                                          • Figure 31: Loan payment behavior, by gender and race, December 2015
                                                                        • Many borrowers make more than the minimum monthly payment
                                                                          • Figure 32: Loan payment behavior, by generation, December 2015
                                                                        • Hispanics are more likely to make only minimum payments
                                                                          • Figure 33: Loan payment behavior, by Hispanic origin, December 2015
                                                                        • Women focus on paying down loan with higher interest rate
                                                                          • Figure 34: Loan payment behavior, by gender, December 2015
                                                                        • Higher earners focus more on loan with higher interest rate
                                                                          • Figure 35: Loan payment behavior, by household income, December 2015
                                                                      • Attitudes toward Borrowing

                                                                        • Most are uncomfortable with debt, but realize they need it
                                                                          • Figure 36: Attitudes toward borrowing, December 2015
                                                                        • Is debt ever appropriate?
                                                                          • Is debt really necessary?
                                                                            • The recession made most consumers manage their money more carefully
                                                                              • Millennials are in a quandary about credit cards
                                                                                • Figure 37: Attitudes toward borrowing, by generation, December 2015
                                                                              • Banks have a trust advantage among young people
                                                                                • Figure 38: Attitudes toward borrowing, by generation, December 2015
                                                                              • Banks have an opportunity with Hispanics
                                                                                • Figure 39: Attitudes toward borrowing, by Hispanic origin, December 2015
                                                                            • Attitudes toward P2P Lending

                                                                              • Millennials’ distrust of P2P lenders could open door for banks
                                                                                • Figure 40: Attitudes toward lenders, by generation, December 2015
                                                                              • High earners are also a challenge for P2P lenders
                                                                                • Figure 41: Attitudes toward lenders, by household income, December 2015
                                                                              • Parents are more trusting of banks
                                                                                • Figure 42: Attitudes toward lenders, by parental status, December 2015
                                                                              • How much do consumers know about P2P lenders?
                                                                              • Credit Scores

                                                                                • Most have solid credit scores
                                                                                  • Figure 43: Credit scores, December 2016
                                                                                • Millennials most likely group to have low credit scores
                                                                                  • Figure 44: Credit scores, by generation, December 2016
                                                                                • Lenders have to offer more to consumers with high credit scores
                                                                                  • Figure 45: Most important features of lender, by credit score, December 2015
                                                                              • Appendix – Data Sources and Abbreviations

                                                                                • Data sources
                                                                                  • Consumer survey data
                                                                                    • Consumer qualitative research
                                                                                      • Direct marketing creative
                                                                                        • Abbreviations and terms
                                                                                          • Abbreviations
                                                                                            • Terms

                                                                                            Companies Covered

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                                                                                            Unsecured Loans - US - March 2016

                                                                                            £3,174.67 (Excl.Tax)