Consumers Diversify Borrowing as Credit Cards, Personal Loans and Home Equity Credit All Grow
By Steve Cocheo, Senior Executive Editor at The Financial Brand
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Executive Summary
- Americans continue to borrow, though how they do so is shifting.
- Personal loans have been growing among all credit tiers, a comeback for a category that was showing less use a few years back.
- Home equity credit is picking up again as borrowers with value buried in their homes are looking to extract it. There’s a new twist being used by people with lower credit scores.
Even as consumers face a continuing unclear economic picture, they are drawing increasingly on three key forms of consumer credit liquidity: credit cards, unsecured personal loans, and home equity credit.
In the latest quarterly report on consumer credit conditions from TransUnion:
• Credit card originations experienced annual growth for the first time since 2022, increasing 4.5% year over year in the first quarter of 2025. Increases were seen across all credit tiers, such as 5% among super prime borrowers and 15.2% among subprime borrowers.
• Unsecured personal loans continued growing in the first quarter, with both ends of the credit spectrum, super prime and subprime borrowers, contributing to an 18% growth rate year over year. Super prime unsecured lending rose by almost 20%, while borrowing by subprime consumers came to nearly 23%.
• Home equity credit saw its highest rate of year over year growth since 2022, with home equity originations increasing by 12% in the first quarter. TransUnion notes that demand for home equity credit is strongest among Generation X and Baby Boomer borrowers who are established homeowners with a fat seasoned slice of equity to borrow against.
“American consumers are exhibiting steady and disciplined credit behavior, with signs of stabilization and measured growth across key lending categories, even as they continue to navigate a complex economic landscape,” TransUnion summed up in a statement accompanying its statistical release.
Unemployment trends concern both consumers, in the first person, and creditors, in the aggregate. TransUnion’s Atsuko Watanabe, senior director, research and consulting, says the impact of employment trends on consumer liquidity bears watching.
Credit card trends, for example, could at some future point indicate that consumers are charging more than what they can afford to try to offset a potential liquidity shortage, says Watanabe. Prior to joining TransUnion she worked in credit positions at several large consumer lenders.
Credit card borrowing and unsecured personal loans are intertwined to a degree. One of the major uses of personal loans is consolidating other consumer debt, notably credit card outstandings, for more manageable, lower-rate payments. Home equity credit can be a substitute for major consumer borrowing, often at lower rates given that the credit is secured.
Read more: Inside Synchrony’s Home Brewed, Six-Second Credit Approval Process
Credit Card Trends
TransUnion points out that bankcard originations made a sharp drop in the first quarter of 2024, but bounced back, as noted, in the first quarter of this year. (Originations are reported one quarter in arrears.)
Outstanding card balances also rose by 4.5%, as of the second quarter of 2025. This is lower than year-over-year balance increases seen in recent quarters but still reflects an average increase in outstanding card debt. That average rose to $6,473 per borrower in the second quarter, an increase of 2.3% over the year-earlier average.
The credit lines granted on new card accounts fell by 4.5% in the first quarter, to $5,923, versus the first quarter of 2024.
Total credit card balances rose in the second quarter to $1.09 trillion, up from $1.05 trillion a year earlier — an increase of 3.8%. The number of consumers carrying a card balance rose to 173.5 million, an increase of almost 2%. This was a bit higher than the rate of increase from 2023 to 2024, but much lower than the growth of nearly 3.5% from 2022 to 2023.
Serious credit card delinquencies — over 90 days past due — improved, falling to 2.17% in the second quarter, versus 2.26% a year earlier and 2.06% in 2023. TransUnion notes that delinquencies had been rising, year to year, since 2021.
“This combination of tempered balance growth and reduced delinquency rates suggests a stabilizing — if not gradually improving — consumer credit environment, even as many households continue to navigate economic challenges,” TransUnion observes.
The company pointed out that charge-offs fell year over year by 9%.
The company continues to track the impact of inflation on card trends, having released a study earlier this year that examined key numbers adjusting for inflation.
In the latest analysis, reflected in the chart below, TransUnion looked at 2019, the year before COVID, adjusting spending then for inflation. The company found that average card balances were actually down for prime, prime plus and super prime borrower on this basis.
In a recent separate study about credit card customers’ satisfaction, J.D. Power found that average monthly card spending has been falling, down $68 a month year over year. However, the company noted that 20% of responding credit card users have tapped some form of buy now, pay later credit in the past year.
The same study indicated that 56% of respondents in the J.D. Power analysis fall into the “financially unhealthy” category based on multiple characteristics.
Interestingly, a Morgan Stanley study released in April indicated that the main adopters of BNPL are higher-income households. That study found that among households with annual incomes of $100,000 to $150,000, 38% used BNPL versus 27% among households making $25,000 to $50,000.
TransUnion’s research points out that card originations among super prime consumers rose for three consecutive quarters.
Read more:
- Will the GENIUS Act Revolutionize Banking and Payments? Absolutely. Here’s How
- Digital Wallets Increasingly Dominate Payments, But Cash Maintains A Stubborn Toehold
- Bundling Debit with BNPL Is the Next Big Thing in Cards
Unsecured Personal Loan Trends
Unsecured personal loans run the gamut from companies serving subprime borrowers, a more traditional base, to companies, often fintechs, serving middle-class borrowers. Banks and credit unions also play a role, either directly or as investors in personal loans funded through marketplace credit platforms.
All told, unsecured personal loans, which have been on a growth spurt, have hit a new record level in balances. This credit category rose to $257 billion in the second quarter. That’s a year-over-year rise of 4%. It equates to 23.5% of outstanding credit card debt.
TransUnion reports that delinquency rates on these loans have also been improving, modestly, for the third consecutive quarter. Notably, the improvement has been led by performance among subprime borrowers, according to the company. The company puts this down to “effective risk management and broader economic stability.”
Read more: Millions Face Coming Wage Deductions Over Defaulted Student Loans
Home Equity Trends
The report of the rebound in home equity credit comes amid relevant data from other sources.
At the same time that home equity credit use is rising, a related form of financing has also picked up: cash-out refinancings. This is when a borrower refinances their entire mortgage, on the basis of higher home prices, and uses the difference between paying off the old mortgage and the credit granted for some purpose, such as home improvement.
ICE Mortgage Monitor’s report for August indicates that 70% of consumers choosing cash-out refinances are actually committing to loans carrying higher rates than their current mortgage, in order to get access to the equity. On average, these consumers are accepting an increase in interest rate of 1.45 percentage points.
ICE indicated that many of these borrowers have lower mortgage balances and lower credit scores, and that consumers with higher scores and higher balances will usually prefer a home equity line of credit or a home equity loan.
Read more: Turn the ‘Department of No’ into the ‘Department of Know’
