Many Americans are borrowing and incurring debt to keep up with rising costs for basic necessities, such as groceries, rent and utilities, as well as to make larger purchases. Credit card balances reached a record $1.28 trillion at the end of 2025, according to the New York Fed.
As consumers look to manage that debt, personal loans will be the primary driver of new borrowing this year, according to a forecast released Thursday from TransUnion, one of the three major credit reporting agencies.
“Personal loans have truly become the 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 organization.
TransUnion forecasts that unsecured personal loan originations will drive consumer credit growth in 2026, increasing 5.7% compared with last year — outpacing year-over-year growth in the number of new mortgages through purchases (4.2%) and refinancing (4%), as well as credit card originations (2%). Meanwhile, the firm forecasts that auto loan originations will decline slightly this year, down 1.5%.
It’s the continuation of a trend that started last year, said Michele Raneri, vice president and head of U.S. research and consulting at TransUnion. Unsecured personal loan originations reached a record 7.2 million in the third quarter of 2025, the second consecutive quarter of new highs, according to the TransUnion report.
“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,” Raneri said.
Obtaining an unsecured personal loan is based on your creditworthiness and doesn’t require any collateral, like a car or savings account, to back the loan. As a result, borrowers can often get funding faster than with loans that require collateral.
Fintech lenders, such as LendingClub and SoFi, have also made it easy for borrowers to get loans quickly, experts say. TransUnion found fintech lenders held a 42% share of personal loan originations in the third quarter of 2025, up from about one-third a year earlier.
Subprime borrowers fueling personal loan growth
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The consumers fueling personal loan growth are “subprime” borrowers, those with low credit scores typically under 600, within the typical score range of 300 to 850. Raneri said she expects subprime borrowers to account for about 40% of personal loan originations this year, up from 32.5% in the third quarter of 2025.
With inflation and high interest rates, a further widening of the so-called K-shaped economic split between higher-income and middle- and lower-income consumers is also adding momentum to personal loan growth, experts say.
Higher-income Americans, who are more often homeowners than those with lower incomes, are more likely to be able to tap home equity and use a lower-interest home equity line of credit to help pay off credit card debt, Raneri said.
“On the other side of the K, on the bottom, there are people who are struggling,” Raneri said. “We’re seeing a larger distribution of subprime consumers every quarter, and so they don’t have any slack.”
Consumers with limited financial flexibility may not be able to afford to pay their credit card bills in full. They may take out a personal loan to consolidate those balances, but then resume making purchases on their credit cards and end up incurring more debt, said Triggs, whose organization counsels more than 30,000 consumers a year.
While personal loans are often touted for credit card consolidation, subprime borrowers are not eligible for significantly better rates.
As of mid-February, the average rate on a personal loan was 12.15%, according to Bankrate, and 19.6% for a credit card.
Yet those aren’t rates that subprime borrowers will be offered, Triggs said.
“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,” Triggs said. Personal loan borrowers are generally locked into making a regular monthly payment for three to five years, he said, so “that doesn’t help a lot of people.”
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