Subprime Borrowers Drive Personal Loan Surge
TransUnion reports that subprime borrowers are driving a notable spike in personal loan originations, with CEO Jim Triggs noting that "personal loans have truly become the middle-class refinancing option for high-interest credit card debt". TransUnion forecasts unsecured personal loans will grow faster than new mortgages, credit cards, or auto loans this year. The trend highlights consumers with lower credit scores increasingly using personal loans to consolidate debt.
- The term "subprime" typically refers to borrowers with FICO credit scores below 669, with some lenders defining the range as 580-619. Those with scores below 580 are often categorized as "deep subprime". - As of February 2026, the average interest rate for a personal loan was approximately 12.15% for a borrower with a 700 FICO score. This is often significantly lower than the average credit card interest rate, which stood at 25.35% around the same time. - The Federal Reserve's decisions on interest rates have a direct impact on the cost of consumer borrowing. When the Fed adjusts its key interest rate, the variable rates on products like credit cards and new personal loans tend to follow suit, affecting the overall debt load for consumers. - Rising inflation and interest rates have put a strain on household budgets, particularly for lower- and middle-income households who are more likely to rely on credit. This has contributed to an increase in overall consumer debt. - While personal loans are being used to manage high-interest debt, delinquency rates for these loans are being closely watched. TransUnion forecasts that 60+ day delinquencies for unsecured personal loans will be 3.75% by the end of 2026. - Historically, subprime lending has been concentrated in lower-income and minority neighborhoods. Studies have shown that these areas are more likely to have a higher percentage of subprime loans compared to higher-income areas. - The growth in personal loans for subprime borrowers is part of a larger trend of rising consumer debt, which reached $18.8 trillion in the fourth quarter of 2025. During this period, 4.8% of all outstanding debt was in some stage of delinquency. - The current economic environment is sometimes described as a "K-shaped" recovery, where higher-income households are doing well while a significant portion of the population is struggling. This economic divide can fuel the demand for products like subprime loans as some consumers face financial pressure.
