How Millennials are Changing the Lending and Borrowing Landscape

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Zoot Partner Clarity Services Shares Insights on Millennial Loan Behavior

Written By Susana Walls
Vice President, Marketing at Clarity Services


Click to view the infographic.

So long baby boomers, hello millennials! Millennials have eclipsed the baby boomers to officially become the largest generation in the U.S. They range in age from 18-35 and are poised to be the driving force of our economy in the near future.

It’s no wonder then, that financial institutions are making such an effort to learn about this demographic and how to conduct business with them. Several reports and studies have been compiled in recent years to try to outline and understand the credit behavior of millennials.

Drowning in Debt

The most glaring aspect of millennials’ financial situations is the staggering student loan debt that most of them carry. With the increasing cost of college, this generation has shouldered more student loan debt than any previous generation. As a result, many of them are putting off financial transactions like buying a home or saving for retirement.

It has also been suggested that this group is more reticent about trusting traditional credit in any form, including credit cards, because they have grown up during the recession. They have likely seen their parents struggle to pull themselves out of their own financial holes.

Finding Liquidity From Alternative Finance

Unfortunately, this mistrust of financial institutions and traditional credit can lead to unsound financial decisions. According to a 2016 report from PricewaterhouseCoopers and the George Washington University’s Global Financial Literacy Excellence Center, a mere 27 percent of millennials seek help from a financial professional, even though they admit knowing little about finance.

That same study also found that 42 percent of millennials took out a payday loan or auto title loan, used a pawnshop, got a tax refund advance or purchased a rent-to-own product in the past five years.

According to Clarity Services’ data, millennial use of short-term loans increased 166 percent from 2015-2016.

The popularity of these services with millennials has surged due to the ease and mobility of getting an online loan. With a few clicks of a button, consumers can have cash in hand in 24 hours. Driving to a stuffy bank, speaking to someone in a suit, and filling out endless paperwork is no longer the only option, and besides, many traditional banks are declining millennials for their lack of credit history.

Some might call this a chicken and egg phenomenon. A person needs to secure and use credit in order to build a credit history and thus, a credit score. However, in most cases, one needs a credit score in order to be approved for credit in the first place.

Alternative financial service providers are the loophole in this conundrum. Alternative lending services exist in part to serve those with little or no credit, or those with subprime credit histories.

What’s a Lender to Do?

The use of alternative financial services continues to increase, and millennials are among the heaviest users. So, what can a lender do to serve this generation? Meet them where they are.

If you want to reach millennials, you can’t underwrite with traditional credit reports alone. Subprime credit reports can help differentiate between the consumers who are just starting out and haven’t used much traditional credit yet, and those who have possibly been irresponsible with credit.

Subprime credit bureaus like Clarity Services have the underwriting tools to evaluate these consumers. The CFPB determined that there are 26 million consumers deemed “credit invisible,” meaning they lack a traditional credit score. Clarity has data on 84 percent of them.

This generation will hold the purse strings in the coming years and it’s the lender’s responsibility to adapt. There are plenty of these consumers to go around, if lenders can expand their underwriting strategies to embrace a new generation.

For more information on millennial credit use, please check out our infographic.


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