Personal Loans

High Income and Super Prime Borrowers Taking Bigger Share of Personal Loans on LendingTree Marketplace

taking out a loan

Over the past 10 years, the amount of outstanding personal loan debt has increased by 75%. Personal loans are non-collateralized, installment-based loans. Unlike credit cards, borrowers are required to repay with monthly installments for a set period of time. Because these loans are granted without collateral (and the lender cannot repossess something if the borrower defaults), they tend to have higher interest rates than those with collateral— such as auto or home equity loans.

Although interest rates are typically high for personal loans, some borrowers may yet find them to be lower than the interest rates on their credit card. For this reason, many people use personal loans to pay down or consolidate credit card debt.

Within the last two years, the LendingTree personal loan marketplace has seen an increase in loan borrowers with higher incomes and credit scores. This increase includes both potential and actual borrowers— that is to say those who made inquiries as well as those who closed on loans. We’ll dive into a more detailed account of these LendingTree reports, which includes data from the second quarter of 2017 through the first quarter of 2019.

In our discussion, we’ll present data on borrowers in two ways: First, we’ll refer to super prime (740 and higher) and prime (680 and higher) borrowers. We’ll also discuss borrowers whose credit score falls within buckets of 40-point increments, such as those with a credit score between 660-700, 700-740, and so forth.

Key findings

  • The share of personal loan inquiries from those with incomes over $108,000 increased by 77% between the second quarter of 2017 and the first quarter of 2019, while the share of inquiries from people earning over $84,000 increased by 65%.
  • The share of personal loan inquiries from super prime borrowers (740 and higher) increased by 47% between the second quarter of 2017 and the first quarter of 2019, and the increase in prime and super prime borrowers (680 and higher) rose by 36%.
  • The share of personal loans closed by borrowers with incomes over $108,000 on the LendingTree marketplace increased by 38% between the second quarter of 2017 and the first quarter of 2019, and the share of borrowers earning over $84,000 increased by 26%.
  • The share of closed personal loans from super prime borrowers (740 and higher) increased by 37% between the second quarter of 2017 and the first quarter of 2019, and the increase in prime borrowers (680 and higher) rose by 19%.
  • Borrowers with incomes up to $24,000 decreased their share of closed loans by 22%, and those with incomes up to $48,000 decreased their share by 17%.
  • The share of loans closed by borrowers with scores below 560 increased by 28%, but the share of closed loans from borrowers with scores between 560 and 619 dropped by 24%.
  • The share of inquiries from people with incomes up to $24,000 dropped by 27% during the same period, while inquires from those with incomes up to $48,000 dropped by 16%.
  • The share of loan inquiries by borrowers with scores below 560 decreased by 12%, and the share of closed loans from borrowers with scores below 620 decreased by 9.2%.

Personal loans: Who’s applying and who’s closing on loans

Thanks to the availability of online lending marketplaces, it’s never been easier to shop for a personal loan. Because of the simple and informal way in which people can access these marketplaces, they’re also causing greater changes within the lending market as a whole.

While “payday” outlets offering loans at extremely high interest rates used to be a popular choice among subprime borrowers with little or no access to credit, these borrowers are now gaining an awareness of potentially better means of accessing credit.  As online personal lending services continue to gain in popularity, we could also reasonably expect to see an increase in borrowers choosing to use personal loans over other debt products.

Regarding the securitization of personal loans (i.e. the process by which loans are bundled and sold in shares to investors who profit from interest payments), our information is limited. Based on various filings and reviews, it appears that the minimum borrower requirements for these products are much higher than for asset-backed securities (like residential mortgages and auto loans) and that they are rising.

For example, in the SoFi Consumer Loan Program 2017-3 LLC, securities show that the average gross income of borrowers as of May 2017, was $141,780, with an average FICO score of 731, and an average VantageScore of 682. The most recent offering, reported in February 2019, showed borrowers had an average income of $151,144, an average 753 FICO score, and a 713 VantageScore.

Subprime borrowers comprised the bulk of personal loan inquiries

Within the LendingTree marketplace, lower income and subprime borrowers made up a bigger percentage of people who inquired about loans than they did within the group actually closing loans. As can be seen on our personal loans report, the variety of interest rates was huge; depending on the borrower’s profile, rates could be seen starting below 8% and rising in excess of 100%.

But the number of high-income borrowers who submitted loan inquiries grew by the greatest percentage

Between the second quarter of 2017 and the first quarter of 2019, LendingTree analysts calculated the quarterly percentage of personal loan inquiries made on the LendingTree platform by borrowers who had annualized incomes in one of the following categories:

  • $108,001 or higher
  • $84,001-$108,000
  • $60,001-$84,000
  • $48,001-$60,000
  • $24,001-$48,000
  • $24,000 or less

While LendingTree analysts noted a significant rise in inquiries from the two highest earning categories of $84,001 and $108,001 (which were 65% and 77%, respectively), they also found a drop in inquiries from the lower earning categories. During this time, borrowers with incomes of up to $48,000 submitted 16% fewer inquiries; those received from borrowers earning up to $24,000 also dropped by 27%.

And loan inquiries from super prime borrowers also increased


During this same period, LendingTree analysts looked at the quarterly percentage of personal loan inquiries made on the LendingTree platform by borrowers with credit scores in one of the following categories:

  • 780 or higher
  • 740-779
  • 680-739
  • 620-679
  • 560-619
  • Less than 560

Similar to the findings of high income borrowers, the share of personal loan inquiries from super prime borrowers (those with credit scores of 740 and higher) and prime borrowers (those with credit scores of 680 and higher) also increased — by 47% and 33% respectively. Inquiries from borrowers with the lowest scores (those below 560) decreased by 12%.

High income borrowers closed on loans in greater numbers than before

Between the second quarter of 2017 and the first quarter of 2019, LendingTree analysts also looked at the quarterly percentage of closed personal loans made on the LendingTree platform by borrowers with annualized incomes in one of the following categories:

  • $108,001 or higher
  • $84,001-$108,000
  • $60,001-$84,000
  • $48,001-$60,000
  • $24,001-$48,000
  • $24,000 or less

During this time, LendingTree analysts noted an increase in the number of loans closed by borrowers in both of the highest income categories — by 38% for those earning over $108,000, and by 26% for those earning more than $84,000. The opposite occurred with borrowers in lower income categories, with those earning up to $24,000 decreasing their closed loans by 22%, and by 17%, for those earning up to $48,001.

Only borrowers with 560 to 679 credit scores saw fewer closed loans during this period

Between the second quarter of 2017 and the first quarter of 2019, LendingTree analysts also looked at the quarterly percentage of closed personal loans made on the LendingTree platform by borrowers with credit scores in one of the following categories:

  • 780 or higher
  • 740-779
  • 680-739
  • 620-679
  • 560-619
  • Less than 560

Both prime and super prime borrowers increased their share of closed loans during this time, by rates of 19% and 37% respectively. In fact, even those with scores in the lowest category (with scores below 560) increased their share — by 28%. The one notable decrease from this study was found in borrowers with scores between 560 and 619, whose shares of closed loans dropped by 24%.

Methodology

LendingTree analysts calculated the quarterly percentage of personal loan inquiries and closed personal loans made on the LendingTree platform between the second quarter of 2017 and the first quarter of 2019 by borrowers who had credit scores of 780 or higher; between 740 and 779; 680 and 739; 620 and 679; 560 and 619; and less than 560.  The same was done for borrowers who had annualized incomes of $108,001 or higher; between $84,001 and $108,000; $60,001 and $84,000; 48,001 and $60,000; $24,001 and $48,000; and $24,000 or less.

In this study, we look at borrowers in two ways. First, by looking at those who could be classified as super prime (740+ credit score) and prime (680+) borrowers. Second, by looking at borrowers who fell within specific credit score buckets, such as 660-700, 700-740, and so forth.

 

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