Personal loans for cash flow management
There have been a multitude of events that set the stage for retail banking disintermediation – and for the continuation of the growth in lending made possible by online platforms.
As a result, personal loans are being accepted by poorly paid consumers, yes, but also by individuals and families with healthy incomes.
Looking ahead, Nayar said, demand for personal loans (currently used by 24% of the population) should increase. We may have saved money collectively as a society during the pandemic, but economies are opening up again, so the main drivers of credit spending (that is consumption) are moving back into positive territory. As people take on more debt, they will be even more likely to take on personal loans to manage cash flow.
The conversation took place against a backdrop where the latest iteration of the Paycheck-to-Paycheck Reality Check Report found that 32% of Millennials and Bridge Millennials who live from paycheck to paycheck use personal loans.
Continue reading: Lively paycheck to paycheck triggers personal loan demand
That’s a higher rate than we’re seeing in other age groups, but Nayar said that “it’s not surprising” that millennials would turn to these loans.
As he noted, this generation has “been booked out by the last two major recessions”. They graduated from high school shortly after the 2001 recession, and then faced the great financial crisis and subsequent great recessions for the first few years of their working lives and into the top earning years of their early 30s.
Buckled up cash and borrowed
They took on a lot more debt along the way, Nayar said. College costs resulted in high student loans, and the average millennial has more than $ 27,000 in personal debt, excluding mortgage loans, which include credit card debt, installment loans, and more.
They use personal loans to reach new milestones in their lives – when getting married, starting a family or buying a house. With the pressures of being the sandwich generation of looking after children while looking after older parents, millennials are finding support with personal loans.
That is not to say that only younger sections of the population take out loans. The same report found that 57% of personal loan users have no difficulty in meeting their financial obligations.
As Nayar noted, personal loans have become “a mainstream financial tool for managing debt and managing cash flow so that you can plan for the unexpected and build a savings bag, for example.”
Most Americans, he said, have less than $ 2,000 in savings, and a single event – a medical emergency, a car accident, or the need to send money to a family member – can destroy that cushion.
So consumers take out these personal loans to get rid of their debts, such as credit card loans, and consolidate those liabilities to settle or pay them off. This releases capital to build up the (very useful) money buffers.
“It can be useful not having to remember all of these different due dates in order to pay off all the different debts you may have accumulated over the years,” said Nayar.