4 Trends Shaping the 2025 Lending Landscape

Matt Potere, CEO, Happy Money

High interest rates, skyrocketing consumer debt and advances in technology all converged to make this year’s lending landscape highly complex. Looking ahead, there are several shifts in motion that could create a notable opportunity for credit unions to strengthen their lending strategies and better support members’ financial health in 2025 and beyond. The credit unions that heed the following trends and respond appropriately will be well-positioned to leverage their capital in such a way that enables growth and portfolio diversification while helping members reach their goals.

Fed rate cuts will drive lending strategy decisions. The Fed’s rate cuts this fall have indicated the end of the rising rate cycle, with falling rates poised to stabilize deposits and loan-to-share ratios. As a result, credit unions will have a renewed capacity for growth in 2025, and those looking to get ahead will evaluate and solidify their lending strategies. For example, many will look to correct their overreliance on indirect auto loans and instead embrace more effective ways to diversify their balance sheets with assets that have an attractive risk-adjusted return. The institutions that do so will be better positioned to fuel responsible growth, optimize their portfolios and meet the needs of today’s consumers. 

Consumers’ financial struggles persist. Inflation has eased and is expected to continue its slow march toward the Fed’s 2% benchmark; however, it won’t be a straight line, and relief at the cash register will remain elusive in the near term. As consumers continue to grapple with financial stress, a more diligent approach to personal financial management will become crucial. Many individuals and households are striving to rebalance budgets, make tough trade-offs or restructure their debts to stay afloat, particularly until their incomes catch up with the higher cost of living. In response, more credit unions will look to offer tools and lending products that help members manage budgets and optimize cash flow. Those that can deliver these solutions in a seamless, digitally optimized way will be especially successful.

More members seek debt consolidation options. Consumers have heavily relied on credit for short-term needs due to high interest rates and inflation, driving U.S. credit card debt to an overwhelming $1.14 trillion, with average credit card interest rates peaking at nearly 23%, a record high. This mounting burden has made refinancing options, such as unsecured personal loans, particularly appealing. With APRs on personal loans about 7.5% lower than credit card rates, more consumers are looking to consolidate high-interest credit card debt to deleverage and reduce financial stress. In fact, refinancing credit card balances into personal loans could save U.S. households over $80 billion annually. We expect more credit unions to provide debt consolidation options that can help members regain control over their finances and set themselves up for brighter financial futures.

Risk management and AI come together in lending. Returns are expected to improve as consumer performance stabilizes in a soft-landing scenario, and lenders look to smarter technology, such as AI, to streamline processes and boost efficiencies. However, while AI holds much promise, it can and should not replace solid risk management practices. With regulators tightening oversight of AI-driven tools, credit unions must be prepared to shift if needed. Ensuring alignment with an institution’s credit culture and risk policies will be crucial to safely and compliantly test the AI waters in lending.

In summary, the evolving lending landscape holds both challenges as well as opportunities for credit unions to fortify their strategies and enhance member relationships in 2025. They should:

·       Take proactive steps to optimize portfolios,

·       Provide members with robust debt consolidation and financial wellness tools and options, and

·       Keep solid risk management at the center.

With those areas of opportunity in view, credit unions can not only propel responsible growth but also support members’ overall financial well-being in powerful ways in the year to come.

Matt Potere is CEO of Happy Money, a leading consumer finance company that empowers people to achieve their goals through responsible lending.