TransUnion: Consumer Lending Poised for Growth in 2016

Low Delinquencies, Growing Balances Point to a Strong Personal Lending Market

CHICAGO, IL--(Marketwired - January 27, 2016) -  TransUnion (NYSE: TRU) released today its first-ever personal loan forecast, which found that both secured and unsecured loans will continue to see balance increases and stable delinquencies through 2016. The strong performance of personal loans is expected as the popularity for these products continues to rise among prime consumers.

Since Q3 2013, the number of consumers with personal loans has grown 18% from 23.07 million to 27.34 million as of Q3 2015 (latest data available), representing total balances of $82.52 billion in unsecured loans and $165.46 billion in secured loans.

"During and immediately following the Great Recession, consumer demand for both secured and unsecured personal loans grew," said Jason Laky, senior vice president and consumer lending business leader at TransUnion. "As new, well-funded online lenders and 'fintech' startups entered the market, personal loans had a broader appeal for consumers across all risk tiers. Our personal loan forecast serves to help both traditional and new lenders better understand how consumers are using these products."

The forecast defines unsecured loans as cash loans repaid over short terms, typically one to five years, which have no collateral attached to them. Secured loans are defined as loans that are secured by some sort of collateral, such as furniture or motorsport equipment, but not home equity.

Inside the Unsecured Personal Loan Forecast

TransUnion's forecast projects the average unsecured loan balance will continue to grow throughout 2016, but the growth will occur at a slower rate than previously observed. From year-end 2014 to year-end 2015, the average unsecured loan balance is expected to have grown 7.1% from $6,757 to $7,235. TransUnion's forecast projects that balance growth will slow to 5% from $7,235 at year-end 2015 to $7,599 at the end of 2016.

Average Unsecured Loan Balance per Consumer (Q4 2015 and Q4 2016 are projections)

Q4 2009   Q4 2010   Q4 2011   Q4 2012   Q4 2013   Q4 2014   Q4 2015   Q4 2016
$6,669   $6,138   $5,907   $5,908   $6,264   $6,757   $7,235   $7,599

Since Q4 2012, average balances for unsecured loans have increased every quarter. Loan balances have grown more than $1,300 from the end of 2012, when the average unsecured loan balance was $5,908.

"In the past two years, consumer adoption of unsecured loans has increased," said Laky. "As more consumers with prime or better credit scores use unsecured loans to finance their purchases, average balances have grown each quarter. Our data also indicate that consumers across all risk tiers are accessing and using these loans while also limiting defaults." 

Unsecured loans have experienced growing popularity in the last several years. As of Q3 2015 (the latest data available), 13.72 million consumers had an unsecured personal loan balance. Growth in unsecured loans is largely attributed to the prime and better risk tiers, i.e. those with a VantageScore® 3.0 credit score higher than 661. In Q3 2015, 6.46 million consumers in the prime or better risk tiers had an unsecured loan balance, a growth of more than 2 million additional consumers from Q3 2012 (4.43 million).

Of the 13.72 million consumers with an unsecured personal loan, 3.51 million consumers are in the subprime risk tier (those with a VantageScore® 3.0 credit score lower than 601). This is a 9.8% increase from last year and 700,000 more subprime consumers than what was observed just three years ago.

As growth continues, the unsecured personal loan delinquency rate (the ratio of borrowers 60 or more days past due) is forecast to remain steady at 3.54% (barring seasonal fluctuations) from year-end 2015 to year-end 2016. Unsecured personal loan delinquency rates remain well below Recession levels, when the delinquency rate peaked at 4.81% in Q4 2009.

60-Day+ Unsecured Loan Delinquency Rate (Q4 2015 and Q4 2016 are projections)

Q4 2009   Q4 2010   Q4 2011   Q4 2012   Q4 2013   Q4 2014   Q4 2015   Q4 2016
4.81%   4.66%   4.06%   3.76%   3.76%   3.63%   3.54%   3.54%

Inside the Secured Personal Loan Forecast

Average secured consumer loan balances are also expected to rise in 2016. After peaking in Q3 2009 at $19,209, outside of seasonal variances, balances continued to drop steadily until Q3 2014. At that time, a steady rise in loan balances began, which TransUnion expects will continue in 2016.

Average Secured Loan Balance per Consumer (Q4 2015 and Q4 2016 are projections)

Q4 2009   Q4 2010   Q4 2011   Q4 2012   Q4 2013   Q4 2014   Q4 2015   Q4 2016
$19,100   $18,219   $17,736   $17,438   $16,942   $16,752   $17,411   $17,904

"When the economy is stronger and consumers have more disposable income, consumers are more likely to purchase larger items, such as boats or motorcycles, using secured loans," said Laky. "The low unemployment rates of recent years, coupled with continued low delinquencies, indicate secured loans will continue to be an important financial product for consumers in the coming year."

The secured personal loan delinquency rate (the ratio of borrowers 60 or more days past due) is forecast to increase slightly from 3.66% in Q4 2015 to 3.72% to close 2016. However, this is well within the delinquency rate range observed the last five years.

60-Day+ Secured Loan Delinquency Rate (Q4 2015 and Q4 2016 are projections)

Q4 2009   Q4 2010   Q4 2011   Q4 2012   Q4 2013   Q4 2014   Q4 2015   Q4 2016
4.67%   3.66%   3.65%   3.57%   3.59%   3.72%   3.66%   3.72%

As of Q3 2015 (the most recent data available), 13.6 million consumers had a secured loan balance, and 3.34 million of these consumers were in the subprime risk tier. This is an increase of 1.8% from Q3 2014, but remains 20.7% lower than the subprime levels observed in Q3 2009. More than 7.13 million consumers in the prime and better risk tiers had a secured loan balance in Q3 2015, an increase of 5.7% from 6.74 million in Q3 2014.

To read more about Financial Services or Industry Insights, visit theTransUnion business blog

TransUnion's Forecast

TransUnion's forecasts are based on various economic assumptions, such as gross domestic product, home prices, personal disposable income and unemployment rates. The forecasts would change if there were unanticipated shocks to the economy, such as if home prices unexpectedly fall. Better-than-expected improvements in the economy, such as precipitous drops in unemployment, could also impact these forecasts.

About TransUnion (NYSE: TRU)
Information is a powerful thing. At TransUnion, we realize that. We are dedicated to finding innovative ways information can be used to help individuals make better and smarter decisions. We help uncover unique stories, trends and insights behind each data point, using historical information as well as alternative data sources. This allows a variety of markets and businesses to better manage risk and consumers to better manage their credit, personal information and identity. Today, TransUnion has a global presence in more than 30 countries and a leading presence in several international markets across North America, Africa, Latin America and Asia. Through the power of information, TransUnion is working to build stronger economies and families and safer communities worldwide.

We call this Information for Good.

Contact Information:

Dave Blumberg