A growing debt burden on low- and middle-income Americans

Lower- and middle-income households in the U.S. are just starting to feel the benefits of the economic recovery as wage growth has picked up over the last year, but many are still struggling because the pace of wage gains has not kept up with expenses.

Why it matters: As a result, more Americans are taking on debt in the form of personal loans, which are now outpacing credit cards and auto loans as the fastest-growing debt category in the U.S., according to data from credit reporting firm Experian.

• Personal loan balances rose to $305 billion in Q2 2019, an increase of 12% year over year, and double the growth of credit card debt, the next-highest category.
• The average personal loan balance has risen to $16,259. Balances of $30,000 or more have increased 15% compared to five years ago, and balances of $20,000 to $25,000 have grown 10%, Experian's data shows.

What's happening: Many consumers are taking on the debt through online installment loans, which hold longer payoff times than notorious payday loans, "but often the same sort of crippling, triple-digit interest rates," Bloomberg notes.

• "If the payday loan’s target audience is the nation’s poor, then the installment loan is geared to all those working-class Americans who have seen their wages stagnate and unpaid bills pile up in the years since the Great Recession."
• "In just a span of five years, online installment loans have gone from being a relatively niche offering to a red-hot industry. ... And they have done so without attracting the kind of public and regulatory backlash that hounded the payday loan," per Bloomberg.

The intrigue: The increase in lending is also the result of fintech products, which have more than doubled their market share of unsecured personal loans from 22.4% in 2015 to 49.4% in 2019, Experian says.

• Many companies offer lower-cost alternatives to payday loans, but others are running much the same shtick.
• Online installment loans have managed to avoid many of the regulations payday lenders have been subject to by extending payback time and increasing the amount of the loans. However, the fees are often just as high, meaning borrowers simply have more time to dig themselves into debt.

The big picture: "In the past, personal loans were often considered a last resort for people trying to escape debt," Experian's Matt Tatham wrote earlier this month. "But since financial technology firms, or fintechs, began flooding the market in recent years with unsecured personal loan offers, personal loan balances have surged."

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