In December, Raddon surveyed a nationally representative sample of consumers for our annual lending study. This research gives us insights into consumers’ borrowing behavior, their lender and channel preferences, and their attitudes toward debt in the given economic environment.

One key question we’ve consistently asked consumers is if they anticipate applying for a loan in the next year. This year’s result is both somewhat surprising and concerning and points to some good news and bad news for loan opportunities in 2025.

The Good News

After two years of significant decline, consumer demand for loans has spiked. Heading into 2025, 48% of consumers anticipate applying for a loan in the next 12 months. This is a sharp uptick from 37% of consumers the year prior and is the second-highest level of loan demand we’ve ever recorded. 

Figure 1: Percentage of households that anticipate applying for a loan in the next 12 months 

Loan demand surges heading into 2025

Source: “Loans Baseline” Raddon Research Insights, 2024

The Bad News

This resurgence in loan demand comes as consumers are already saddled with record levels of debt and struggling to manage their existing debt loads.

On a per capita basis, total debt reached an all-time high in 2024. Rising prices for homes and vehicles have led to inflated levels of mortgage and auto loan debt, respectively. Coming out of the pandemic, consumers have substantially increased their credit card spending as the world reopened and stimulus funds largely ran dry. Student loans have continued to grow at the highest rate among all loan types, in part because in the pandemic-era pause, many of these balances haven’t been getting paid down.

Figure 2: Mortgage and consumer debt per adult

Total debt per capita is at all-time highs

Source: “Consumer Credit - G.19,” Federal Reserve

These mounting levels of debt put pressure on borrowers to fulfill their loan obligations. Through the third quarter of 2024, the latest data available from the Federal Reserve, the percentage of credit card, auto and other loan balances transitioning into serious delinquency (90+ days) exceeded pre-pandemic levels.

Another concern here: The student loan pause and off-ramp period has officially ended. Consumers with student loan debt are now required to make repayments on these loans, taking a bite out of their monthly cash flow. Failure to make payments will now result in these accounts showing as “derogatory” on their credit reports.

Figure 3: Percentage of loan balances transitioning into serious delinquency (90+ days)

Loan delinquencies are nearing or above pre-pandemic levels 

Source: New York Fed Consumer Credit Panel/Equifax

Sorry, More Bad News for Borrowers

Interest rates aren’t exactly going down.

One theory for why loan demand surged in our most recent survey is that consumers have seen the headlines announcing Federal Reserve rate cuts. Anticipating lower rates, more consumers would be inclined to borrow and/or look to refinance any loans they took out at elevated interest rates in prior years.

Unfortunately for borrowers, the headlines about lower interest rates haven’t translated to lower loan rates for autos and homes. While the Federal Reserve lowered its benchmark federal funds rate by a collective 100 basis points in 2024, longer-term interest rates have proven stubborn. After those rates initially declined during the first three quarters of 2024, the two-year and 10-year treasury rates erased those declines in the fourth quarter. At the end of 2024, two-year treasury rates were only eight basis points lower than they were at the beginning of 2024. The 10-year treasury rate was 63 basis points higher at end of the year than it was at the start of the year.

Figure 4: Trends in fed funds rate and treasury rates

Two-year and ten-year treasury rates rebounded in 4Q2024  

Source: U.S. Department of the Treasury

The Good News/Bad News Outlook

With consumers signaling a renewed appetite to borrow in 2025, lenders should prepare for higher volumes of aspiring borrowers shopping for loans on their digital banking platforms and in their branches. With consumers holding record levels of debt, delinquencies on the rise and longer-term interest rates staying higher, lenders should also prepare for a challenging year to drive quality loan growth. While loan opportunities may be more prevalent in 2025 than in 2024, financial institutions will need to fine-tune their lending apparatus with more effective pricing, better underwriting, faster decision making and the right product focus if they are going to capitalize on these opportunities.

Important Information

Stay tuned for the full Raddon Research Insights lending report to learn about today’s borrowers and the keys to growth in 2025. More information will be available to our Raddon Research Insights subscribers via email, including webinars, reports and briefs on all of our national studies.