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Q3 2018 U.S. Economic and Credit Trends Outlook - FAQ

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Q3 U.S. Economic and Credit Trends Outlook These questions were answered by Gunnar Blix, Deputy Chief Economist. Question: Are you making a distinction between consumer finance installment loans and unsecured installment loans. Answer: There are a couple of reasons why we distinguish these . Our consumer finance category includes both revolving and installment, and consumer finance installment includes both some secured and some unsecured loans. The consumer finance loans that are secured would be secured not by auto and not by student lending, but things like boats or RVs or even some farm equipment, as well as certain types of sporting goods equipment. On the flip side of this, the unsecured personal loan category includes some lenders that started doing other things originally , and so they were initially not put into the consumer finance category. The online lenders include some that are classified as "other" rather than "consumer finance." We plan to address in our upcoming release of credit trends, which is scheduled to come out in the fall of this year. Question: What was that average loan amount that online lenders extend? Answer: The average loan amount in Q1 of 2018 for online lenders for unsecured personal loans was $14,600 and change. The online lenders aim above many of the others in terms of loan size. Question: What was the average loan term for the online lender versus credit unions? Answer: For term we did not calculate an average as the loans were bucketed by term range. However, for online lenders the median is in the two- to three-year range (44% of loans are 37 months or longer) , with the average likely around 36 months or so – close to three years. Banks also have high average term, where about a third of their loans are in the two- to three-year range (but fewer loans are longer than 60 months). For the others, it tends to be less. The average for credit unions is likely in the one- to two-year range, and the average for finance companies is clearly down in the one -year range. Question: What factors are contributing to the increase in unsecured personal loan lending? Answer: We do know that some people are using these loans for consolidation, to replace expensive credit card debt and other personal unsecured debt. Other uses include project -related debt like home improvements or to bootstrap or boost small businesses. Home eq uity lending standards have tightened, leaving some borrowers out of that market. Unsecured personal loans offer an opportunity to get funds at reasonable interest rates, and both consumers and lenders are taking advantage of this. Online lenders in particular are focusing on consumers with prime credit and on loans for longer terms than where finance companies traditionally have played. In fact, two recent Fed studies came to opposite conclusions. A study by the Chicago Fed and Philadelphia Fed argued that online lending stood to help the underbanked gain access to credit. The

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