Heather Turner and her husband needed a few thousand dollars to jump-start the adoption of a teenager from Ukraine, and their timing was good: Lenders led by online firms have opened the spigot for personal loans, even if it comes at a steep price.
Personal loans surged to a record this year and are the fastest-growing U.S. consumer-lending category, according to data from credit bureau TransUnion. Outstanding balances rose about 18 percent in the first quarter to $120 billion. Fintech companies originated 36 percent of total personal loans in 2017 compared with less than 1 percent in 2010, Chicago-based TransUnion said.
The Turners, of Lewiston, Maine, needed a speedy loan and didn’t want to borrow against their house or car. Heather Turner said LendingClub arranged a 3-year loan for less than $10,000 last October at an interest rate around 23 percent — similar to that of a credit card. Most notably, the loan is unsecured.
“Is it a perfect loan? No,” Turner said in an interview. “We didn’t expect some low-interest personal loan with no collateral.”
Web-based firms like LendingClub, Prosper Marketplace Inc. and closely held Social Finance Inc. are driving the expansion of personal loans. LendingClub said in a filing that personal-loan originations in the first quarter soared 20 percent from a year earlier to $2.1 billion.
“A lot of credit goes to the fintech lenders for reinvigorating a loan category that’s been around forever,” Jason Laky, TransUnion’s consumer-lending business lead, said in an interview. “If you think about ‘It’s a Wonderful Life,’ George Bailey and his bank offered personal loans to the consumers. It’s a core banking product that’s been around since the beginning of banking.”
Established banks also have a piece of the market through online platforms including SunTrust Banks Inc.’s LightStream and Goldman Sachs Group Inc.’s Marcus.
“As a result of movements in technology, the opportunity in the consumer space has moved to us,” Goldman Sachs Chief Executive Officer Lloyd Blankfein said last month at the Economic Club of New York.