Personal / unsecured consumer loans

Does your product fit here?

Personal unsecured loans are fixed-term installment loans to individual consumers with no collateral. When the borrower defaults, your recovery path is a lawsuit and potential wage garnishment, not repossessing an asset. That simple fact drives everything about how this asset class is underwritten, priced, and structured.

Products that fit here:

Personal installment loans: Fixed amount, fixed term (24-60 months typical), fixed or floating rate. Used for debt consolidation, home improvement, medical, personal expenses. LendingClub, Upstart, SoFi personal, Prosper.
Debt consolidation loans: Borrower uses proceeds to pay off credit cards or other revolving debt. Often originated to near-prime borrowers improving their credit profile. Historically lower CDR because the borrower improves their monthly cash flow, but adverse selection risk exists.
Medical / healthcare installment loans: Patient financing for elective or emergency medical expenses (CareCredit, Proceed Finance, GreenSky/Goldman). Slightly higher moral hazard.
Home improvement loans (unsecured): GreenSky, LightStream, regional banks. No lien on the property — this distinction from home equity is important. Higher loss severity if the home isn’t pledged.

What does NOT fit here:

BNPL / point-of-sale: Typically less than 12 months, smaller balance, merchant-tied. See BNPL Receivables.
Payday / small dollar loans: Less than 30 days term, different regulatory environment, very different economics and investor universe. Specialty asset class.
Auto (even if your policy doesn’t perfect the lien): If there is a titled vehicle, it’s auto. Capital providers won’t let you recharacterize this.
Student loans for education purposes: Even if originated as a personal loan, if under a student loan program with school certification, it falls under Student Loans.

Edge cases

ISAs: Not a loan under most state law. See Education and Vocational Receivables.

Peer-to-peer loans: If you own the whole loans (not investor notes), treat as unsecured consumer installment. The underlying product is the same.

Credit builder loans: Secured by a savings deposit held at the lender. Technically secured, loss rates are very low, and the structure is different from standard personal loans.

How lenders will classify you

Credit Tier	FICO	Advance Rate (Warehouse)	Pricing
Super-prime	760+	85-90%	SOFR + 175-275 bps
Prime	680-759	80-88%	SOFR + 225-350 bps
Near-prime	600-679	70-80%	SOFR + 300-450 bps
Subprime	< 600	55-70%	SOFR + 400-600+ bps

Illustrative pricing. See pricing disclaimer.

Market benchmarks and comps

Performance benchmarks by credit tier

Metric	Super-Prime (760+)	Prime (680-759)	Near-Prime (600-679)	Subprime (<600)
CDR (annualized)	0.5-1.5%	2.5-5.0%	6-12%	14-25%
CNL (life of pool, ~48mo)	1.5-3.0%	5-10%	12-22%	22-40%
CPR (annualized)	18-30%	15-25%	12-20%	8-15%
Loss severity	90-98%	90-98%	90-98%	90-98%
WAL	1.5-2.5 yrs	1.5-2.5 yrs	1.5-2.5 yrs	1.5-2.0 yrs
Net effective yield	7-11%	11-16%	16-24%	24-36%

The severity reality

Unlike auto loans where you recover 35-60 cents on the dollar through repossession and auction, unsecured personal loans give you nothing to seize. Real-world net recovery on charged-off personal loans is 5-15 cents on the dollar. For your credit model, assume 90%+ severity. Loss and recovery analysis is essentially: net loss equals CDR times 1.0 on a net basis.

This is why capital structure for personal loans looks so different from auto, even for similar FICO profiles.

Prepayment dynamics

Unsecured personal loans have relatively high CPR due to:

Debt consolidation borrowers, as their credit improves, often refinance into lower rates
No prepayment penalty is standard, so payoff is frictionless
Rate sensitivity: falling rate environments accelerate payoff

High CPR reduces your interest income but also reduces duration risk. For term ABS models, both scenarios must be run: slow CPR at 0.5x your base case (extension) and fast CPR at 2x your base case.

What “good” performance looks like

Prime portfolio CDR below 3.5% for month 12 cohort performance
CNL tracking below 8% at month 30 for near-prime
CPR within +/- 25% of base case
No vintage-over-vintage deterioration: each cohort at the same seasoning point performing as well or better than prior

Red flag performance benchmarks

CDR exceeding 1.5x your stated base case at 12 months for any vintage
30-59 DPD delinquency rising for 3+ consecutive months without seasonal explanation
CDR accelerating after plateau: if month 18 CDR starts rising after flattening at month 12, more losses are coming
Any vintage with month 6 CDR more than 1.5x the prior vintage: early onset is a very bad sign in personal loans

What lenders and investors focus on

1. Credit score and credit bureau data quality

FICO version matters. FICO 8 is the standard. FICO 9 and 10 treat medical debt differently, which can materially affect scores for near-prime borrowers. If you’re using a non-standard FICO version, disclose it and be prepared to demonstrate correlation to outcomes.

Thin file concentration matters. Borrowers with fewer than 5 tradelines have less predictive credit history. Concentration above 15% thin file in your pool is a flag.

If you use proprietary scores or alternative credit models (Upstart, Zest AI), you face a higher bar. Capital providers will require backtesting documentation showing that your model’s predictions correlated with actual default outcomes. “Our model is better” is not sufficient; you need outcome data.

2. Debt-to-income (DTI) at origination

DTI is the most important underwriting variable after credit score. What you’re looking for:

Prime: DTI below 35% post-funding (including the new loan)
Near-prime: DTI below 42-45% typical maximum
Subprime: DTI often above 50% (borrowers are overleveraged by definition); focus on payment-to-income (PTI) instead

Income verification is the key diligence question here. Originators that verify income through pay stubs, tax returns, bank statements, or payroll API outperform those using stated income by 1-3% CDR on average. If you shifted from verified to stated income in any vintage, capital providers will flag it and analyze those loans separately.

3. Purpose distribution and loan use

Purpose affects loss rates more than most originators expect:

Purpose	Default Risk
Debt consolidation	Lower CDR, but adverse selection risk (stressed borrowers buying time)
Home improvement	Moderate; borrower has property stake
Medical	Higher collection difficulty; moral hazard
Wedding / vacation / discretionary	Higher CDR historically
Undisclosed / “other” > 30%	Hard to predict; expect questions

4. Loan term distribution

Shorter terms (24-36 months) have lower absolute loss exposure and faster payoff, but higher monthly payments that can stress lower-income borrowers. Longer terms (60-84 months) lower the payment but increase the probability of default before payoff.

Concentration in 72-84 month terms for near-prime or subprime borrowers is a red flag. These borrowers are taking on very long-term unsecured obligations that significantly increase their total loss exposure if anything goes wrong.

5. Underwriting model and guideline consistency

Has your underwriting model changed in the last 18-24 months? Has the credit box expanded? Watch your vintage approval rate trend: rising approval rates often precede rising default rates by 6-12 months.

Vintage performance consistency is the key test: each cohort should look similar to prior cohorts at the same seasoning point. If more recent vintages look significantly better, investigate why. Is it genuinely better underwriting, or are loans simply too young to have seasoned?

Typical structures used

Warehouse facility

The most common structure for personal loan originators.

Advance rate: 82-90% super-prime; 75-85% prime; 68-78% near-prime; 55-70% subprime
Pricing: SOFR + 200-325 bps (super-prime); SOFR + 275-400 bps (prime); SOFR + 350-525 bps (near-prime); SOFR + 450-650 bps (subprime)
Revolving period: 12-24 months typical
Facility size: $25M-$500M; $500M+ for scaled originators with multi-year track records

Forward flow

Common for smaller or emerging originators. Capital provider commits to purchase loans on an ongoing basis at an agreed discount rate.

Pricing: Yield-based; capital provider targets 12-18% net yield for near-prime
Best for: Originators under $75M/year who want simplicity without facility-level revolving mechanics

Term ABS (144A and public)

Available once you have 3+ years of audited data and a $150M+ annual origination run rate.

Typical deal size: $200M-$750M
Agencies: S&P and Moody’s are standard; KBRA for smaller/newer programs
Major issuers: LendingClub (LCT), SoFi (SOFI Trust), Prosper (PMIT), Avant, Marlette, Best Egg
Enhancement levels: See Section 6

Whole loan sale

Periodic bulk sale of originated loans to a capital provider. Common in near-prime and subprime. Banks or insurers buy near-prime paper at a discount; specialty buyers purchase subprime. Pricing: par minus 2-5 points for prime, larger discount for subprime.

Asset-class-specific structural features

Seasoning and peak loss window

Personal loans peak in losses at months 10-20 on book. This is faster than student loans (peak at months 6-24 post-grace) and slower than short-duration BNPL.

Capital providers apply seasoning haircuts to loans less than 6 months old in the borrowing base. Advance rates are typically 5-10% lower for new loans vs. seasoned. Some structures exclude loans less than 3 months old entirely. Plan your origination ramp accordingly.

Static pool requirements

Lenders require monthly static pool data going back 12-24 months before extending a warehouse. Format: group all originations by quarter and track monthly CDR, CPR, and cumulative CNL for each cohort.

Rating agencies want more than 500 obligors per vintage cohort for statistical reliability. If your quarterly originations are below that threshold, you may need to group into semi-annual cohorts initially.

Standard eligibility criteria

Parameter	Prime	Near-Prime	Subprime
Minimum FICO	580	500	No floor (alt credit)
Maximum loan term	60 months	72 months	84 months with DSCR test
Maximum DTI post-funding	45%	50%	55%
Maximum loan amount	$25K-$40K	$15K-$25K	$5K-$15K
Single-state cap	20-25%	20-25%	20-25%

Servicer obligations

Personal loan servicers do not advance principal or interest on delinquent loans. Collections strategy documentation is required: when do you call (days 1-10)? When do you escalate (days 15-30)? When do you charge off (120-180 DPD is standard)?

Settlement authority must be defined: can the servicer accept less than par? Under what conditions? Without clear settlement authority, loss rates on charged-off loans may be lower than they need to be.

Voluntary prepayment and clean-up call

No prepayment penalty is standard. High CPR is economically negative for term ABS investors (they lose premium) but positive for warehouse (reduces outstanding). Clean-up call at 10% remaining pool balance is standard and relevant given high CPR rates.

Rating agency treatment

S&P approach

Base case from your vintage data (minimum 24 months required). Stress multiples: AAA = 3.5-5.5x base case losses. Super-prime gets lower stress (2.5-3.5x) due to demonstrated borrower resilience. Subprime gets 4.5-6.0x due to lower confidence in performance prediction. Loss severity assumption: 95-100% (no collateral). Both floor and ceiling prepayment scenarios are tested.

Moody’s approach

Builds independent base case using regression on macroeconomic variables. Heavy emphasis on originator financial health and business continuity. Explicit “originator risk” stress: what happens to the portfolio if the originator/servicer fails?

KBRA

Most accessible for emerging originators; will work with 12-18 months of data. Actively rates LendingClub, Avant, and other marketplace lenders. Enhancement levels comparable to S&P.

Typical credit enhancement levels (% of pool)

Rating	Super-Prime	Prime	Near-Prime	Subprime
AAA subordination	8-15%	15-22%	25-35%	35-50%
Total CE (AAA)	10-18%	17-26%	27-40%	38-55%
Reserve account	0.5-1.0%	1.0-1.5%	1.5-2.5%	2.5-4.0%
OC target	1-2%	2-4%	3-6%	5-8%

Stress scenarios typically tested

Base: Your 5-year average performance
Moderate stress: Unemployment +3%, CDR 2x base
Severe stress (AAA): Unemployment +6%, CDR 4-5x base, CPR 0.5x base (extension)
Originator default: Does the portfolio perform adequately with a replacement servicer?

Diligence focus areas

Tape analytics

Required fields: origination date, balance, rate, term, remaining term, loan status, FICO at origination, DTI post-funding, loan purpose, state, income (verified or stated), employment status, income verification method.

The income verification method field is critical and must be disclosed. Originators that shift from verified to stated income show 1.5-3x higher default rates on affected cohorts.

Standard stratification requests: FICO bands, DTI bands, loan term distribution, purpose distribution, state, income band, origination vintage.

Static pool analysis

Group originations by quarter; track monthly CDR, CPR, and CNL. The key diligence test: compare month 12 CDR for the most recent 4 vintages. Are they consistent? If more recent vintages look better, is it genuinely better underwriting, or are loans simply too young to have seasoned?

For near-prime and subprime programs, capital providers want 12-16 quarters (3-4 years) of history to establish a reliable loss curve.

Income verification sample

Capital providers may request a 2-5% sample of loan files for income verification review. They’re checking whether income verification is documented per your stated methodology and whether income amounts are consistent with bank statement data.

Common finding: income overstated by 10-20% due to self-reported data without verification. Request subsequent delinquency rates on those loans to quantify the impact.

Underwriting model diligence

Request model documentation: what variables are in the underwriting model? How long has it been in production?
Backtesting: ask the originator to show model performance on a holdout set. Does predicted CDR match actual CDR?
Model changes: any changes in the last 24 months? How were they validated? Changes that boosted approval rates without offsetting improvements in other variables are concerning.

Servicer and collections operations

Site visits are standard for first facilities. Capital providers focus on collections call infrastructure, agent quality, and loss mitigation tools. Key metrics to request: average contact rate at days 1-30, right-party contact rate, and promise-to-pay conversion rate.

Active participants

Major originators (also ABS issuers)

Super-prime/prime: SoFi (personal), LightStream (SunTrust/Truist subsidiary), Marcus by Goldman Sachs
Prime/near-prime marketplace: LendingClub, Prosper, Avant, Marlette (Best Egg), Upgrade
Near-prime/subprime: Oportun, OppFi, Possible Finance, LoanMart
AI-driven underwriting: Upstart (FICO + income + education), Zest AI (B2B model for banks)

Banks providing warehouse

JPMorgan, Goldman Sachs, Citi, Bank of America: Prime and near-prime programs
Pacific Western (now Western Alliance), Silicon Valley Bank (now First-Citizens): Fintech warehouse historically
Regions, Truist, KeyBank: Mid-size programs
Cross River Bank, Celtic Bank, Blue Ridge Bank: Fintech-oriented bank partnerships

Credit funds (warehouse and forward flow)

Atalaya Capital Management: Very active in consumer unsecured warehouse
Waterfall Asset Management: Significant consumer unsecured buyer
Blue Owl Capital, Benefit Street Partners: Larger programs
Monroe Capital, Victory Park Capital: Near-prime and fintech programs
i80 Group: Fintech-focused consumer credit
Community Investment Management (CIM): Near-prime with impact orientation

Insurance capital buyers

Require AA/AAA rated notes. Active buyers of LendingClub, Avant, and Marlette ABS. Principal Life, Protective Life, American National, and Global Atlantic are known buyers.

ABS underwriters

Barclays, Citi, JPMorgan, Goldman Sachs, BofA: Prime programs
Academy Securities, Piper Sandler, Regions Capital Markets: Smaller/newer programs
RBC Capital Markets: Active in LendingClub and marketplace ABS

Law firms

Issuer counsel: Mayer Brown, Sidley Austin, Orrick, Dechert
Lender/underwriter counsel: Cadwalader, Latham & Watkins, Katten, Hunton

Red flags

Performance red flags

CDR exceeding 1.5x your stated base case for the most recent 2 vintages at the same seasoning point
CNL tracking above 12% at 18 months for any prime or near-prime vintage (should be below 5-7%)
Increasing 30-59 DPD rolling in consecutive months without macro explanation
CPR declining significantly (below 10% for prime): borrowers unable or unwilling to pay off, may signal financial stress
Any single vintage performing materially better than all others: check whether it’s too young, cherry-picked, or reflects an undisclosed guideline change

Originator red flags

Origination volume growth above 50% year-over-year: aggressive growth almost universally precedes performance deterioration in consumer unsecured
Approval rate increasing without documented improvement in borrower quality
Income verification weakening: shift from verified to stated income, or reduction in verification scope
Customer acquisition cost escalating without portfolio performance improvement
Regulatory action: CFPB investigation, state AG action, class action relating to origination or servicing practices
Key credit or risk officer departure in the last 12 months without replacement
Audited financials showing net losses without a clear path to profitability

Important: The combination of rapid origination growth + approval rate expansion + income verification loosening is the classic pre-deterioration pattern in consumer unsecured. When you see two or three of these together, the losses are likely already in the pipeline, they just haven’t emerged yet.

Structural / concentration red flags

Single state above 25%: New York (strict usury laws), California (DFPI regulation), or Texas concentration creates regulatory risk
Single purpose above 50%: performance can be correlated if macro conditions affect that use case
More than 20% of pool with loan terms above 60 months: long-tenor unsecured paper carries higher severity
Originator uses bank partnership (rent-a-charter) with an unresolved true lender challenge pending in any jurisdiction