The lending industry in America is on the rise, particularly when it comes to short term term loans. But what is the demographic of the consumers applying for these loans, and should lenders be concerned about ‘subprime’ customers?
Taking out credit has certainly become more common in the last decade. In 2010, around 11 million US residents took out a personal loan, and by 2020 this figure had nearly doubled to 21 million. The amount of debt almost tripled, going from approximately $55 billion to around $162 billion.
These borrowers are made up of many different demographics, and are taking out various types of personal loan. But perhaps the type of credit industry that is growing most rapidly is that of short term loans.
When we talk about short term loans, these are usually unsecured personal loans which are borrowed over a few months or years. The interest rates can be higher with short term loans than longer term loans, but as they are repaid over a shorter period of time, this may not make a large difference overall.
Short term loans generally fall under two main categories – payday loans and instalment loans. With the former, you’d be borrowing the funds for a few days or weeks, to see you through until your next payday. Unlike an instalment loan, where you’d make monthly repayments, a payday loan is repaid as a lump sum. Instalment loans allow customers to spread the cost of borrowing over several payments, which means these loans are usually for larger amounts of money. But who actually takes out short term loans in the US?
A report issued by the Board of Governors of the Federal Reserve System in 2019 showed that 2% of Americans would need to use a payday loan or other form of short term credit to cover an emergency expense of around $400. Although this may not sound like a huge percentage, that’s around 6.5 million people.
When it comes to the type of loan people take out, this will largely depend on their personal circumstances and their credit score. Generally those with a higher credit rating will opt for a more traditional loan, such as a bank loan, while people with a poor credit history are often turned down for such loans, instead borrowing from short term lenders.
The latter group of people, with their lower credit scores are sometimes referred to as ‘subprime’ consumers. Because they may have had difficulties with their finances in the past, it’s often assumed that these subprime customers won’t be able to keep up with prime credit repayments. But is this a true belief?
TransUnion data taken over a ten year period looked at delinquency rates of balances for different Vantage Score bands, and the results were fairly surprising. Although delinquency overall does generally correlate with a person’s credit score, subprime lending was revealed to be the least volatile sector in terms of delinquency. For subprime consumers, the delinquency volatility percentage was around 21%, prime was 42% and superprime reached 53%.
According to further information from TransUnion, there are more subprime consumers in the US finance market than there are prime. Around 42% of the population would be classified as non-prime, and would not be offered the best rates when it comes to borrowing. Prime consumers make up around 36% of the population, while the remaining 22% don’t have a credit footprint, so have not borrowed previously, or at least for a number of years.
With these figures in mind, it’s no wonder that the short term lending industry is on the rise in the US. And banks and other financial institutions offering revolving credit don’t seem to be serving non-prime consumers. It’s been estimated that between 2008 and 2018 these organisations reduced their lending to US borrowers with FICO scores of less than 660, to the value of almost $150 billion.
There is clearly a large market for non-prime lending, particularly when it comes to short term loans. This is an ever growing industry, as there is such a high demand. So if you’re working within finance or are simply considering affiliate marketing in general, this could be a fantastic opportunity.
In the US, there are around 12 million payday loan borrowers alone, and approximately 23,000 payday lenders. When you consider the fact that you could be getting around $30 per lead, you could end up earning a lot in terms of commission!
So if you’re looking to become an affiliate marketer for US short term loans, regardless of whether you live in the US or elsewhere, Leadtree Global would love to hear from you! Getting set up is a straightforward process, and our tech team will be there to support you every step of the way.