Americans are increasingly turning to personal loans to manage mounting debt, a trend fueled by rising costs for everyday expenses and a surge in borrowing among those with less-than-stellar credit. Credit card balances hit a record $1.28 trillion at the conclude of 2025, according to the Federal Reserve Bank of Latest York, signaling a broader struggle with affordability. As consumers seek ways to consolidate high-interest debt, personal loans are poised to be the primary driver of consumer credit growth in 2026, according to a new forecast from TransUnion.
The appeal of personal loans lies in their potential to offer lower interest rates than credit cards, making them an attractive option for debt consolidation. Though, this growing reliance on personal loans is particularly pronounced among “subprime” borrowers – those with credit scores typically below 600 – raising concerns about their ability to manage additional debt and the potential for a widening economic divide.
Personal Loans Outpace Other Forms of Credit
TransUnion forecasts that unsecured personal loan originations will increase by 5.7% in 2026, outpacing growth in new mortgages (4.2% for purchases, 4% for refinancing) and credit card originations (2%). Auto loan originations, conversely, are expected to decline slightly, down 1.5%. This shift reflects a broader trend that began last year, with unsecured personal loan originations reaching a record 7.2 million in the third quarter of 2025 – the second consecutive quarter of new highs, according to TransUnion’s report.
Michele Raneri, vice president and head of U.S. Research and consulting at TransUnion, explained that consumers are drawn to personal loans because of the potential for lower interest rates. “When people have a lot of credit, particularly on credit cards, their interest rates will be higher than what a personal loan usually is. And so a lot of people start to look at being able to consolidate their credit cards,” she said.
Fintech Lenders Drive Accessibility
The ease of access to personal loans has been further facilitated by the rise of fintech lenders like LendingClub and SoFi. TransUnion found that these lenders held a 42% share of personal loan originations in the third quarter of 2025, up from roughly one-third a year earlier. This increased competition and streamlined application processes have made it easier for borrowers to secure funding quickly.
Subprime Borrowing Fuels Growth, Raises Concerns
The growth in personal loan originations is being largely driven by subprime borrowers, who are expected to account for approximately 40% of all personal loans issued this year, up from 32.5% in the third quarter of 2025. This trend is occurring against a backdrop of a widening K-shaped economic split, where higher-income individuals are better positioned to manage debt through options like home equity lines of credit, while lower-income individuals have fewer alternatives.
Raneri noted that higher-income Americans are more likely to be homeowners and can leverage home equity for debt consolidation. “On the other side of the K, on the bottom, there are people who are struggling,” she said. “We’re seeing a larger distribution of subprime consumers every quarter and so they don’t have any slack.”
The Limits of Consolidation
While personal loans are often marketed as a solution for credit card debt, experts caution that they may not provide significant relief for subprime borrowers. Jim Triggs, CEO of Money Management International, a nonprofit credit counseling organization, points out that subprime borrowers often don’t qualify for substantially lower rates. “You may be paying 28%, even 30% [rates on] your credit cards, but your personal loan may only be, maybe, at 24%, so you don’t have that much relief,” he said. He also emphasized that personal loans typically involve fixed monthly payments over three to five years, which may not be sustainable for those with limited financial flexibility.
As of mid-February, the average rate on a personal loan was 12.15%, according to Bankrate, while the average credit card interest rate stood at 19.6%. However, these averages don’t reflect the rates offered to borrowers with lower credit scores.
The increasing reliance on personal loans, particularly among subprime borrowers, underscores the challenges many Americans face in managing their finances amid persistent inflation and high interest rates. While these loans can offer a temporary solution for debt consolidation, they also carry the risk of perpetuating a cycle of debt if borrowers continue to accumulate credit card balances after securing a personal loan. Consumers seeking financial guidance can explore resources like Money 101, an eight-week learning course on financial freedom, available here and in Spanish.
TransUnion will release its next quarterly report on consumer credit in late July 2026, providing an updated assessment of personal loan trends and the financial health of American consumers.
Disclaimer: This article provides information for general knowledge and informational purposes only, and does not constitute financial advice. It is essential to consult with a qualified financial advisor for personalized guidance.
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