Medical Loan Debt Statistics: 2021
Personal needs and repairs are the most popular purposes for which Americans took payday loans last year. The share of loans for recreation and the purchase of gifts has dropped significantly, while loans for medical treatment and education have been borrowed twice as often. America’s Finance Guide notes that clients of microfinance organizations have become more disciplined.
Americans take out more payday loans for treatment this year
Loans for medical treatment and education are growing the fastest in 2021 in relative terms, Ally Financial experts reported. The share of 1000 dollar pay day loans that clients took to solve health problems, including to manage chronic pain, increased compared to 2020 from 5.6 to 10 percent. The share of loans for education increased from 2 to 3.8 percent.
“On the one hand, health problems worsened, and most of the people were forced to spend money on paying for medical services and medicines. On the other hand, the transition to distance education has led to a great demand for tutoring services,” – this is how Andrew Shephard, an Ally Financial representative, explained the market dynamics. “Also, due to compliance with the self-isolation regime and the transition to remote work, people freed up additional time, and many preferred to spend it on self-development. The growth of loans for education is associated with it”, he added.
The most popular purposes of payday loans in 2021 are personal (consumer) needs (39.5 percent), medical treatment (10 percent), home renovation (15.3 percent) and large purchases (household appliances, electronics, etc. – 12.3 percent). The share of payday loans for vacations and entertainment has significantly decreased – from 4.3 percent in 2020 to 2.2 percent in 2021. Americans also began to take out short-term loans less frequently for gifts (5.6 percent in 2021 versus 6.4 percent in 2020) and for refinancing loans from banks and other loans (0.9 percent in 2021 versus 2.5 percent in 2020).
According to America’s Finance Guide, in the third quarter of 2021, the payday loan portfolio grew by 6 percent compared to the second quarter, to 3 billion dollars. The number of borrowers under the current payday loan agreements has practically returned to the levels of the beginning of the year and amounted to 11.8 million. The average loan size in the payday loans segment increased from $700 to $1,000, in the segment of medium-term personal loans – from $1,500 to $2,500.
The regulator draws attention to the decrease in the share of overdue debt in the total portfolio of microfinance organizations. At the end of the quarter, it decreased to 30.7 percent (for loans overdue by 90 days or more). The main factor in improving the quality of the portfolio is the strengthening of the risk policies of microfinance organizations during the first wave of the pandemic, which contributed to the issuance of loans to more reliable borrowers, as well as improved payment discipline against the backdrop of growing economic activity.
The improvement in the quality of borrowers is also noted by market participants. According to Experian, in September 2021, the average personal credit score of a payday borrower was 716 points – 6 points higher than in September 2020. The maximum increase in the score is observed among borrowers with loans exceeding $900 (by 41 points).
According to Irene Jackson, Experian consumer affairs supervisor, microfinance organizations improve the quality of risk management, which leads, among other things, to an improvement in the quality of the client base. Also, many payday lenders reward borrowers with a high personal credit rating and offer them the best loan terms.
“Many large lenders noted that the quality of clients in mid-2021 was growing,” Irene Jackson added. “In general, the level of financial literacy and financial discipline of clients is growing. In addition, recently we have seen a change in the client base of payday lenders: there are more young borrowers (age 18-20), there is a small influx of “classic” banking clients into the sector.”
Tags: finance, loans online, medicine, money, payday, treatment