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This past decade has seen the personal loan industry grow from a fledgling, high-risk business to a booming space occupied by numerous lenders and prime borrowers.
According to the most recent consumer data from TransUnion, the national personal loan debt stood at $107 billion in Q2 of 2017. This represents a 10.80 percent increase from the same quarter in 2016 and a 132 percent increase from 2012.
During this time, consumers have also been substantially more successful at repaying their debt; personal loan delinquencies dropped from 8.50 percent to 3.02 percent, a new low.
Personal loans have become increasingly popular because they can assist cash-strapped consumers caught in a bind in a relatively low-cost way. The product can be used for household expenses, debt consolidation, home improvement, life events such as marriage, medical costs, and everything in between.
As mentioned above, fintech lenders have made an aggressive move into the personal loan space. TransUnion reported that fintech lenders comprised 3 percent of the sector in 2010, but that share skyrocketed to 30 percent in 2015 and has only continued to grow.
Using our own applicant data in conjunction with data from our fintech lending partners, LendEDU has put together The State of Personal Loans in 2018 report, which will give readers an inside view of the personal loan industry through the most up-to-date data.
Personal Loan Data
1. What is the average FICO credit score of someone approved for a personal loan?
LendEDU found that the average approved personal loan applicant had a FICO credit score of 741.
2. What proportion of applicants are approved for a personal loan?
LendEDU found that 23.88 percent of applicants were approved for a personal loan, placing the denial rate at 76.12 percent.
3. What proportion of approved applicants go on to complete the personal loan process to funding?
LendEDU found that 34.86 percent of approved applicants went on to accept a personal loan.
4. What is the average funded personal loan amount?
LendEDU found that the average funded personal loan amount was $21,644.
5. What is the average time it takes to receive personal loan funds after being approved?
LendEDU found that the average time it took to receive personal loan funds after being approved was 6.25 days.
6. What is the average interest rate of a personal loan?
LendEDU found that the average personal loan interest rate was 14.54 percent.
Observations & Analysis
Approval For a Personal Loan Can Be Difficult…
Our data suggested that getting approved a personal loan is no walk in the park.
First, the average FICO credit score of an approved applicant was 741, which scores as “good” – the second highest credit score category. Experian pegs the average credit score of a U.S. resident at 687, significantly below the average credit score of an approved applicant.
Second, LendEDU’s data uncovered an extremely low approval rate when it came to personal loans. Only 23.88 percent of all applicants were successfully approved for a personal loan, with 76.12 percent being denied.
When taken together, these two data-points should help dispel some longstanding rumors about personal loans. Many tend to lump personal loans into the same category as payday loans: easily approved loans with outrageous interest rates meant for low-income consumers. In reality, personal loans are an entirely different type of financial product that are often distributed to prime or prime plus borrowers.
Even When Applicants Are Approved They Often Don’t Accept the Loan
One of the more interesting findings from this report was that only 34.86 percent of approved personal loan applicants go on to complete the process to funding.
It would be difficult to surmise a precise reason as to why so many (65.14 percent) approved applicants are not completing the personal loan process to funding. One would think that someone that took the time to submit a personal loan application has the end goal of actually getting funded, so why is that not the case?
Perhaps, he or she did not receive the desired terms or interest rate. The repayment term could have been too short, the interest rate too high, or the loan size not adequate. Whatever the reason may be, it is a perplexing trend to be sure.
Comments on Average Personal Loan Size, Interest Rate, and Time-to-Fund
LendEDU’s data found that the average personal loan size was $21,644. This is a considerable sum of money to be lent, especially when one considers that personal loans are often compared to a line of credit issued via credit card.
Experian found that the average credit card limit was $8,071, considerably less than the average personal loan size. But, after remembering that the average approved personal loan applicant has a credit score of 741, personal loan lenders can be justified for distributing such large loans.
The average size of a personal loan can also be defended once you take a look at the average personal loan interest rate that LendEDU published. According to our data, the average personal loan interest rate is 14.54 percent, which lands right around other published averages. Some of the risk tied into lending such large sums of money is nullified by tying it to a high interest rate.
Finally, if a consumer is in a serious monetary bind and is relying on a personal loan to loosen the knot, they will certainly not grow impatient with personal loan funding. Our data found that it took an average of 6.25 days after being approved to receive personal loan funds. Quite a quick turnaround!
For this report, LendEDU analyzed more than 10,000 personal loan applications from 2017. The applicant data was collected from our personal loan lending partners, SoFi, Upstart, Upgrade, Prosper, Lightstream, Citizens Bank, and BestEgg.
The seven aforementioned companies make up a sizable portion of the personal loan market. The data was weighted based on the proportion of applicants. All of the applicants were sent to the seven lending companies from the LendEDU website.
Each lender provided slightly different reporting and data. Some lenders did not provide certain data fields. Due to privacy concerns, we are unable to provide applicant weighting or confirm lending specific data.
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Author: Mike Brown