There’s one fact about millennials that may be lost upon most, except for an increasing amount of lenders: all members from the generation known for college debt are now officially adults.

That’s according to Pew Research Center, which uses 1996 as the cut-off year of birth defining the generation.

Moneylenders may not be surprised because they’re the ones underwriting a growing share of personal debt to young adults. While building a credit portfolio as thin-file applicants, many alternative finance and online lenders will have already loaned products like cash advances, short-term or installment loans to help a maturing population afford a range of purposes.

 A Growing and Active Borrowing Segment

At 25 percent of the population, millennials are now the largest generational demographic in the United States. With 80 million of consumers among them, they make up an annual buying power of $200 billion with 21 percent of U.S. discretionary spending, according to Experian.

Young adults have significantly increased borrowing activity, a recently published study reveals. In 2015, nearly 12 percent of the consumers opting for a personal loan were 35 or younger. As of 2018, the same demographic increased its proportional share of personal loans, up to 25 percent.[1]

Proportionately Higher for Alternative Lending

These increases are generally consistent with what Clarity has found among millennials. However, in alternative financial services markets, Clarity has found that millennials account for a proportionately larger segment of borrowing activity in the subprime market throughout a five-year span. In the report, millennials represent 25 percent of the subprime loan market, but they open 34 percent of the loans.

Each of the above reports echo the overall paradigm shift in financing explored in Clarity’s recent spotlight, “The Evolution of Credit-Risk Evaluation.” A large portion of millennials were introduced to the jobs market during the economic crash and subsequent decade-long recovery. Many would become a significant part of the borrowing population seeking alternative financing products.

Cause for Optimism

During the recovery, several mainstream financial institutions restricted funding to fewer borrowers. But borrowing demands remained, and alternative credit lenders provided service to young consumers in need of cash advances and other short-term loans. This dynamic persisted to the point that traffic in alternative financing increased by 212 percent from 2014 to 2015, according to the Cambridge Centre for Alternative Finance.

Despite major growth in AFS lending throughout recent years, the ability to pay has remained strong among borrowers in the alternative market. Clarity research shows that consumer stability remains consistent with little change to key attributes typically associated with risk in 2017.

Particularly in the subprime market, consumer stability is very much linked to the future performance of a loan. Generally speaking, the less stable an applicant’s personal details, the more likely they are to default on loans.

As the alternative financial services industry grows and lending terms evolve, Clarity is committed to providing products and services that address rapidly changing market conditions.

[1] LendingPoint. “Millennials driving surge in personal loans.” Published Oct. 8, 2018.