If you are a millennial, then you probably have a bad reputation for how you spend money. If you were born between 1981 and 1996, you are part of the millennials age group and exposed to many stereotypes people have created for your generation. People may tell you that you have poor work and financial habits, no idea how to manage money, and don’t make savings. For many years, debt was a source of shame, but lately, it has gained ground in people’s lives and changed its reputation. Now loans are the primary source of funding people rely on when they start a business, buy a house or simply purchase something they don’t afford.
Millennials, from all age groups, are adding various kinds of loans to their balance sheets. TransUnion reports that in 2019, personal loan balances reached $156 billion. Not only the amount of money people borrow has grown, but also the number of unsecured personal loans. In 2019, people purchased 22.5 million unsecured personal loans. Finance experts have identified two factors behind this growth, one at each side of the demand and supply model.
The rise of fintech leaders triggered the increase of unsecured personal loans. Banks and credit unions still have a significant role to play in the industry. Still, most of them maintained their position because they collaborate with fintech organizations that use the latest strategies and technologies. In 2019, fintech leaders generated around 40% of the total number of unsecured personal loans. Experian predicts that by 2022 the fintech lending will reach $74 billion.
Research shows that millennials drive the demand side because their levels of personal loan grow with light speed. Experian also reports that the average personal loan balance of this age range increased by 44% in the between 2015 and 2020. But, even if millennials are in a hunt for personal loans, they are selective about the source of money. This generation doesn’t trust traditional lenders as the previous ones. They instead prefer to work with new institutions that provide cash online. They also are excited to work with tech companies that also provide financial resources.
Millennials take personal loans to travel
While some millennials need money to pursue education, many take personal loans to seek adventures. Young people are funding their lifestyle with borrowed money. Online lenders registered a 50% growth in personal loans for travel purposes, and 80% of these people are millennials who cannot afford to jump into adventures if they don’t borrow money. It looks like millennials are a tech-savvy generation who want to spend their free time exploring new places, but their finances don’t support their desires. They prefer online lenders because the idea of approaching banks and other traditional providers doesn’t seem so appealing. Applying for a personal loan with a bank can be a long and overwhelming process because most times, traditional lenders don’t understand why people would take money to pursue entertainment. The digital lending space enables them to access cash without providing credit history quickly. Millennials find a balanced lifestyle essential for a happy and healthy life, and travel became a crucial aspect of their leisure consciousness. The desire to discover the world has led to a growth of domestic and international trips.
The generation of millennials is planning travel loans the same way the previous age groups planned investments and house loans. A shift happened in the young generation in terms of money. Not only the ones who cannot save but also the ones who want better experiences are applying for personal loans. They want more luxurious trips, vacations that offer them a complete experience. For the new customer of travel loans, it’s easy to find a money source because they can access the Internet. They usually take bad credit loans for last-minute holiday plans. Millennials register with travel websites that send newsletters with offers few would refuse. They wait patiently for the travel provider to craft offers for their dream destination, and they use personal loans to pay for the service. They also take money to fund high-end vacations they couldn’t afford.
Emergency expenses require fast solutions
With accommodation more expensive than ever, few millennials can put savings in an emergency fund. Only 60% of adults have emergency savings they can use for unexpected events. Regularly, their funds don’t exceed $1000, the average cost for a medical emergency. So, when an unexpected event lands, whether it is a broken car, flood, or medical emergency, they need money fast. A few years ago, people turned to credit cards when they needed emergency funds, but millennials don’t find them so attractive. Now, online lenders are popular because they provide money fast and most of the times without asking a credit history. People no longer have to take an arduous trip to the bank and wait weeks for approval. They use a device with an Internet connection, access a directory that provides lists of lenders, and compare services. When they find one that meets their needs, they apply for a loan, and receive approval in less than 48 hours. They don’t have to tie an asset to their personal loan.
80% of the millennials who use personal loans also go toward debt consolidation because they want to simplify their finances. It’sIt’s easier to make a single monthly payment that covers all their debts. They automate services whenever possible because they’re caught in a spiralling lifestyle that rarely allows them to remember all the tasks they must complete. Also, contradictory to the popular conception that millennials lack responsibility, they are a conscientious generation, so they prefer to automate payments to maintain a good credit score. With many payments to make, they may miss one of them, and it can damage their credit score for when they’d want to purchase real estate.
Millennials use personal loans for more than paying for education. Long gone are the times when young people borrowed money to pay for college, nowadays they do it to complete home improvement projects, travel the world and cover for emergencies.