Credit union and financial institution leaders face a growing list of challenges. With liquidity at a premium, commercial real estate under stress, and shifting credit risks, traditional asset strategies are being re-evaluated, prompting a rethink of where and how capital is deployed.
The typical investment mix of long-term loans and securities may turn out to yield lackluster results. But there might be another option: consumer credit.
Consumer credit is a viable but often overlooked way to balance long-duration, low-yield portfolios. Personal loans offer short terms, high yields, and solid returns. Institutions can originate loans or invest through fintechs, often opting for fintechs to avoid building new infrastructure.
Understanding Personal Loans As An Asset Class
Consumer lending is a $27 trillion and growing market, generally split into property-backed residential mortgages and non-property-backed consumer loans. As an asset class, it gives investors exposure to a range of consumer credit — from mortgages and personal loans to emerging products like buy now, pay later. This growth has been driven by changing consumer behavior and advances in technology.
4 Key Benefits Of Personal Loans
When financial institutions choose to invest in consumer lending, and more specifically, the sub-asset class of unsecured personal loans, they can benefit from the following:
1. Quality Borrowers
Personal loan borrowers are often individuals in their mid-30s to mid-50s with solid credit histories, higher incomes, and a focus on improving their financial future, typically by consolidating high-interest credit card debt.
By consolidating debt with a personal loan, borrowers gain one payment, fixed terms, and fixed rates. Many see their credit scores rise. LendingClub Bank members average a 48-point increase.
2. Solid Returns
Personal loans often have shorter durations (typically 24 to 72 months) compared to longer-dated assets like mortgages. They also offer higher yields (around 6%–8%) with a steady income stream from borrower repayments.
Delinquency rates for personal loans are low and trending downward. In Q1 2025, TransUnion reported the 60+ days past due rate dropped to 3.49%, down from 3.75% the year prior.
3. Portfolio Diversification
With their relatively high yields and short durations, personal loans offer a way to diversify investment portfolios. Long-duration, lower-yielding assets will likely remain part of the mix, but adding shorter-duration assets can help balance it out.
4. A Growing Asset Class
Personal loans continue to grow. TransUnion reports a 26% year-over-year uptick in personal loan originations – four consecutive quarters of growth, signaling strong consumer demand.
Currently, 24.6 million U.S. consumers have an unsecured personal loan, with total balances reaching $253 billion, per TransUnion.
A Strong Choice In Uncertain Times
In today’s climate, the regulatory and macroeconomic landscape remains uncertain. During such times, short-duration investments can offer compelling returns with reduced exposure to long-term volatility.
When investing in personal loans, investors can choose from a range of structures with different risk and return profiles. For example, LendingClub Bank offers flexibility to purchase loans on a passive or active basis, in bulk or individually, as whole loans or in security format.
Before investing, institutions should determine their objectives and risk-return preferences. They should also choose a provider with deep experience and a proven track record.
With monetary policy tightening, commercial real estate stress, and deposit volatility putting pressure on balance sheets, financial institutions should consider new options.
Personal loans stand out as a resilient, high-yielding, and diversified asset class. Well-suited to today’s rapidly changing environment.
DISCLAIMER: The information included in this article is historical, may include simulated or hypothetical scenarios, is for illustrative purposes only, and should not be relied on as an indicator of future results or utilized as the basis from which to make any investment decision. Investments are not deposits insured by the FDIC, may lose value over time and no return is guaranteed. This article is not intended to provide, and should not be relied