Subprime borrowers fuel surge in personal loans, TransUnion finds
Many Americans are borrowing and borrowing money to cover the rising costs of basic needs like food, rent, and utilities and to make larger purchases. Credit card balances hit a record $1.28 trillion by the end of 2025, according to the New York Fed.
Personal loans will be the main driver of new borrowing this year as consumers try to manage this debt. A forecast released Thursday from TransUnionOne of the three major credit reporting agencies.
“Personal loans have become a truly middle-class refinancing option for high-interest credit card debt. That’s why they’re growing exponentially,” said Jim Triggs, CEO of Money Management International, a nonprofit credit counseling agency.
TransUnion estimates that unsecured personal loan originations will support consumer credit growth in 2026, rising 5.7% compared to last year; is outpacing year-over-year growth in the number of new mortgages through purchases (4.2%) and refinancings (4%) and credit card originations (2%). Meanwhile, the company estimates that vehicle loan originations will decrease slightly by 1.5% this year.
This is a continuation of a trend that started last year, said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. According to the TransUnion report, unsecured personal loan originations reached a record 7.2 million in the third quarter of 2025; this figure reached new highs for the second consecutive year.
“When people have a lot of credit, especially on credit cards, interest rates will often be higher than on personal loans. That’s why many people are starting to look for ways to consolidate their credit cards,” Raneri said.
Getting an unsecured personal loan depends on your creditworthiness and does not require any collateral, such as a car or savings account, to support the loan. As a result, borrowers can often receive funds more quickly than with loans that require collateral.
Fintech lenders like LendingClub and SoFi are making it easier for borrowers to get loans quickly, experts say. TransUnion to create Fintech lenders had a 42% share of personal loan originations in the third quarter of 2025; This rate was at one third a year ago.
Subprime borrowers fuel personal loan growth
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The consumers fueling personal loan growth are “subprime” borrowers, those with low credit scores typically below 600, with the typical score range being 300 to 850. Raneri said he expects subprime borrowers to account for approximately 40% of personal loan originations. This rate is higher than 32.5% in the third quarter of 2025.
With inflation and high interest rates, the so-called Experts say the K-shaped economic divide between high-income consumers and middle- and low-income consumers is also accelerating personal loan growth.
High-income Americans, who own homes more often than low-income earners, are more likely to be able to tap into home equity and use lower-interest mortgage lines to help pay down credit card debt, Raneri said.
“On the other side of K, there are people struggling at the bottom,” Raneri said. “Each quarter we see a broader spread of subprime consumers, so they don’t have any slack.”
Consumers with limited financial flexibility may not be able to pay their credit card bills in full. They may take out a personal loan to consolidate those balances, but then incur more debt by continuing to make purchases with credit cards, said Triggs, whose organization advises more than 30,000 consumers a year.
While personal loans are often touted for credit card consolidation, subprime borrowers don’t get significantly better rates.
As of mid-February, the average interest rate on personal loans was 12.15%. According to Bankrateand 19.6% for credit card.
But those aren’t the rates to be offered to subprime borrowers, Triggs said.
“You might be paying 28 percent or even 30 percent [rates on] “Your credit cards, but your personal credit might only be 24%, so you can’t relax that much,” Triggs said. Personal loan borrowers typically have to make a steady monthly payment for three to five years, so “that doesn’t help a lot of people,” he said.
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