Now that the economy is doing well and people are working, lenders are willing to provide home equity loans, impacting the growth rate in personal loans.
Secured personal loans, or ones for big-ticket items like furniture or boats, are also expected to enjoy greater demand this year. TransUnion expects average secured consumer loan balances to increase to $17,904 by the end of the year, up from $17,411 at the end of 2015, with the number of secured loans increasing by about 3%.
"It reflects consumers' willingness and comfort with their job prospects and the economy that they go out and get those kinds of things," says Laky of secured personal loans for discretionary items like a recreational vehicle, boat or motorcycle.
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"There was a big drop in secured balances coming out of the recession up until 2 years ago," he says.
Default rates expected to be remain stable this year
In addition to predicting an increase in demand for personal loans, TransUnion is expressing confidence that the default rates for personal loans won't increase in 2016.
In the unsecured loan area, TransUnion expects default rates or the number of loans that are 60 days past due to hold steady at 3.54%, lower than the recession high of 4.81% in the 4th quarter of 2009.
Albery agrees that default rates should be stable. "We don't expect the default rates to increase with a strong economy and low unemployment. Personal loan lenders are continuously improving their risk models and processes of underwriting the loans," he says.
TransUnion says many of those consumers with personal loans were better risks. In the third-quarter of 2015, 6.46 million of the 13.72 million consumers who had an unsecured personal loan balance were in the prime or better risk tiers. That means they have a much lower likelihood of defaulting on their loan. That's growth of more than 2 million consumers from the 3rd quarter of 2012, TransUnion says.
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Borrowers in the subprime risk tier stood at 3.51 million, which is a 9.8% increase from last year.
On the secured personal loan side, TransUnion is forecasting the default rate to increase slightly to 3.72% at the end of 2016 from 3.66% in the 4th quarter of 2015. That is still within the delinquency range for secured personal loans over the past 5 years.
Of the 13.6 million consumers who had a secured loan balance as of the 3rd quarter of 2015, 7.13 million were in the prime and better risk tiers and only 3.34 million were in the subprime risk tier.
"The underlying cause of the growth is that we are in the midst of a pretty good economy," Laky says. "When it comes to lending products, employment and wage growth, combined with our belief that we will stay employed, are drivers of people's willingness to take out loans and of their ability to repay them."