The Use of Loans Among Young Adults

The Use of Loans Among Young Adults

In the first quarter of 2021, the number of young borrowers grew at the fastest pace. A study by US credit bureaus recorded that young people under the age of 25 began to borrow money much more often than people of other ages. According to credit bureau experts, banks and microfinance institutions attract young people due to the lack of good borrowers of other age categories.

The number of loans among the youth is growing fast

In terms of absolute numbers, the growth is not that great. From the beginning of 2021 to the end of December, the share of young borrowers grew by only 0.4 percent – to just over 5 percent among all age groups (to be exact, 5.2 percent).

However, if you analyze the relative numbers, then the picture looks different. In the first three months of 2021, there were more borrowers in only three age groups (30-39, over 65, and 18-29). At the same time, in the first two groups, the growth dynamics was limited to one-tenth of a percent. And the number of young people who took out a loan increased by 4 times in comparison with them.

Every tenth payday loan Columbus GA has been issued to young people under the age of 25 since the beginning of 2021. Clients choose this type of lending because payday loans are easy to access and repay, there is no paperwork involved, and all credit scores are accepted. If accepted, consumers get the money as soon as the same day.

The age group of those who are aged 50 to 59 came closest to young people, but here the trend is the opposite – the number of such borrowers, on the contrary, decreased by 0.3 percent.

Also, there were fewer borrowers in the age group from 20 to 29 years old and in the group from 40 to 49 years old.

The main “driver” of growth in the share of youngest borrowers in 2021 was unsecured lending, primarily payday lending and the credit card segment, according to experts from credit bureaus.

As a result, since the beginning of 2021, every tenth credit card was issued to young people, compared to the fourth quarter of 2020, the growth was 1.4 percent. And the share of personal loans provided to young people under the age of 25 reached 8 percent of the total number of loans of this type issued in the first quarter of 2021.

At the same time, it seems that young people either prefer to buy cars for cash or simply do not want to acquire transport for the time being – in the total volume of loans issued, the share of car loans is only 4 percent. A situation with mortgages is similar, but here the reason is clear: payments under such a loan are quite large and few young people can afford them. The share of mortgage loans in the total volume is 4.8 percent.

As for the picture in the regional context, since the beginning of 2021, the largest increase in the number of young people who took out loans was observed in Ohio (+1.4 percent) and Nebraska (+1.3 percent). In Iowa and Maryland, the number of young people with loans also increased, but only slightly – by 0.3 percent in both states.

The lowest dynamics of growth in the share of borrowers under the age of 25 was noted in Louisiana, Alabama and Texas, as well as in Tennessee (all +0.1 percent).

According to experts, more active attraction by banks of young borrowers is a new trend in the retail lending market. There are not enough good “mature” borrowers, so lenders are turning their attention to the segment of the population, which is not yet very familiar to them, who are just entering adult (including financially) life.

By the way, the fact that credit cards are the main “driver” for attracting young borrowers is not accidental. This type of loans allows banks to manage credit risk as efficiently as possible to minimize losses.

Young people prefer online loans

Equifax conducted a study on online loans. It turned out that this segment of credit products is in increasing demand among young people. The share of clients aged 18 to 25 was almost a quarter of all users of online loans. Over the past year, the indicator has grown by more than three points. The leading MFIs in the market shared their opinions on why online loans are in great demand among young people: “Boys and girls actively use gadgets and Internet technologies. They can apply for a loan in any convenient way, including through a smartphone or tablet. It takes them a few minutes to submit an application. It is not necessary to have a personal computer with Internet access at hand. You can go by public transport and place an application.”

According to recent statistics, more and more young people use online portals like to find the best deal on the net, read user reviews and check out lenders’ ratings in each particular city. So far, this is the most convenient and easy way to find the most suitable loan offer.

Also, do not forget that banks often reject loan applicants submitted by young people. Therefore, they apply for loans online. This is very convenient and the borrower has more chances of getting accepted for a loan. Young people are less trusted in the bank. First, young people do not have a good credit history. Secondly, they do not have a stable income and well-paid job. Third, it is difficult for boys and girls to provide collateral.

In the segment of online loans, one can observe the following picture: the number of young clients under the age of 25 is growing. There is no significant growth in other categories. For example, in the segment of borrowers aged 26-30, the numbers have not changed. In general, if we talk about the big picture, then almost 70 percent of people who use online loans are under the age of 35. In principle, everything is logical. It is unlikely that a pensioner, for example, feels comfortable filling out an application remotely. He or she has difficulty using a modern touchscreen smartphone.

Predictions for 2022

Financial experts think there will be many more applications. First, the online payday loan segment is rapidly popularizing. More and more clients are moving into this category. Secondly, the maximum daily interest rate may be reduced in 2022. Of course, people will take advantage of this immediately. And we are waiting for an increase in the number of applications precisely by remote means. Another thing is that not all requests will be approved. No MFI will operate at a loss.

Category: General Issues

Tags: finance, loans, money, payday loans, young people