Credit unions' unsecured personal loan balances increase: report

Balances of unsecured personal loans that were borrowed from credit unions and financial institutions in general have increased, according to recent data. (iStock)

Credit union members are borrowing at record volumes, particularly unsecured personal loans, according to data from CUNA Mutual Group.

Credit union loan balances rose 14.6% annually in May, the fastest annual pace since May 1995. On a monthly basis, unsecured personal loan balances grew by 3% in May, while other loan balances rose 2.3%, the report showed.

Kenny Cooper, vice president of lending at Neighborhood Credit Union, said the credit union experienced substantial growth in unsecured loans year-over-year and anticipated it would continue as consumers look for ways to deal with rising costs.

"If a consumer is looking to take out unsecured debt, a credit union is the best option," Cooper said. "Not only do credit unions cap their interest rates at 18%, which is considerably lower than many [non-credit union competitors], the personal relationship credit union members have with their credit unions can make it easier to secure loans. Credit unions tend to provide loans for those individuals who may have been underserved or overlooked by larger financial institutions."

If you're considering a personal loan to help pay off your credit card debt, shopping around for the lowest interest rate possible is essential. You can visit Credible to compare personal loan rates for free without impacting your credit score.

CAPITAL ONE, OTHER LENDERS TAP THE BRAKES ON AUTO LOANS

Unsecured personal loan growth for all lenders

Personal loan growth hasn't only surged at credit unions; balances are up across the board for financial institutions in general.

Personal loan debt reached $192 billion in the second quarter of this year, which is a 31% jump from 2021, TransUnion reported. Borrowers also took out larger sums of money, with the average loan amount totaling just over $8,000, compared to $7,000 the time last year.

One driver of growth was the expanded credit profiles of borrowers. The TransUnion report showed that lenders have expanded loan eligibility to include borrowers with lower credit scores. Originations grew 56.5% to 5 million new loans, with all credit risk tiers experiencing at least 20% growth from the previous year. However, subprime borrowers saw the largest rise in originations at 71.2%, according to TransUnion.

Another driver of loan activity was the increased amount of fintech companies in the space that use aggressive advertising to make consumers more aware of these financial options when they're looking to get an unsecured loan, according to Cooper.

Chris Cohen, chief innovation officer of Kasasa, also noted the competition between traditional banks and fintech companies, while highlighting the potential benefits of borrowing a personal loan from a credit union.

"Competition to attract borrowers remains very strong as both megabanks and fintechs are aggressively seeking to drive personal loan growth," Cohen said. "Credit unions have unique advantages and a reputation for offering a more personalized customer experience and a willingness to work directly with borrowers to tailor a solution that works, which is crucial during a period of economic uncertainty."

If you’re interested in borrowing a personal loan, you can browse current personal loan rates in the table below and visit Credible to learn more about how to qualify for the lowest rates.

9 WAYS TO IMPROVE YOUR CREDIT SCORE BEFORE APPLYING FOR A PERSONAL LOAN

High inflation contributed to increased personal loan borrowing

Inflation tops the list of why consumers have turned to personal loans, according to TransUnion. As the overall cost of living remains high, personal loans have offered potential financial relief to struggling consumers, JP Kelly, president of OpenClose, said.

"Inflation has risen past 9%, which means that the cost of living is more expensive than it once was," Kelly said. "For some who are trying to make ends meet, obtaining an unsecured loan could be a fast option to get on sturdier ground, and that is certainly why we've seen this recent uptick."

Most personal loans are also structured with fixed interest rates, meaning the rate won't change regardless of inflation and can be paid back over several months or even years.

"Inflation is stressing a lot of family budgets," Chris Motola, a financial analyst at MerchantMaverick.com, said. "Many of these families are having to turn to credit to maintain lifestyles or, in some cases, even consistently pay their energy and transportation costs. When credit card balances start getting out of hand, some borrowers turn to unsecured personal loans for lower interest rates and debt consolidation."

Personal loan rates vary considerably by credit score and loan term. If you're curious about what kind of personal loan rates you may qualify for, you can use an online tool like Credible to compare options from different private lenders. Checking your rates won't affect your credit score.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column