Consumer Debt Continues To Rise In The US In 2025

Private credit firms have piled aggressively into consumer debt this year, snapping up unsecured loans at a pace that has alarmed some analysts and raised fresh questions about underwriting standards and risk management across a fast-growing corner of Wall Street.

Private credit groups bought or agreed to purchase $136bn of consumer loans in 2025 through direct acquisitions and so-called forward flow agreements, according to figures compiled by KBW analysts. That compares with just $10bn in 2024, a near fourteen-fold increase in a single year. The surge marks one of the most dramatic shifts yet in how private capital is being deployed amid intensifying competition in traditional corporate lending.

The buyers include some of the industry’s largest players, among them KKR, Blue Owl and Sixth Street. Much of the activity has focused on credit cards, personal loans and buy now, pay later products, areas typically avoided by private credit managers until recently because of their higher volatility and lack of collateral.

One of the most eye-catching transactions was KKR’s agreement to acquire a multibillion-dollar credit card portfolio from New Day, a private equity-backed lender in Europe. Similar deals are now being replicated across the US consumer finance market as private credit firms search for new avenues of growth.

“These transactions highlight a clear shift,” KBW analysts said. “Private capital is increasingly fuelling the expansion of unsecured consumer lending, while regulated banks remain comparatively cautious.” That divergence has sharpened scrutiny of how risk is being assessed and priced as private credit funds scale rapidly.

Consumer debt is inherently riskier than most forms of corporate lending. Credit cards, personal loans and BNPL balances are typically unsecured, with no direct recourse to assets if borrowers default. BNPL, in particular, remains a relatively young product whose behaviour in a prolonged economic downturn has yet to be tested at scale.

Yet the appeal for private credit firms is clear. Returns on consumer finance can be attractive, especially when compared with increasingly crowded areas of leveraged corporate loans. Many firms see asset-based finance as offering better risk-adjusted returns, particularly when loans are diversified across millions of borrowers rather than concentrated in a handful of companies.

The expansion into consumer lending comes as private credit managers push deeper into asset-based finance more broadly, including equipment leasing, aircraft finance, auto loans and student debt. These areas are viewed as sitting between traditional corporate credit and structured finance, offering yield without direct exposure to company cash flows.

The timing, however, has unsettled some observers. Adam Josephson, a former analyst at KeyBanc Capital Markets who now publishes independent research, said private credit firms were accelerating into consumer debt just as credit quality in the US shows signs of strain.

“There are no indicators that this is a particularly good point in the cycle to be increasing exposure to unsecured consumer credit,” Josephson said. He pointed to rising delinquencies in auto loans and student debt, as well as signs that household balance sheets are under growing pressure.

Data from the Board of Governors of the Federal Reserve System show that revolving credit balances at US banks surged in the years following the pandemic, but have edged lower in 2025, slipping to just above $1tn. Banks have tightened standards as income growth slows and population growth moderates, particularly among lower-income consumers.

Josephson argued that private credit firms may be stepping in where banks are pulling back, not because risks are falling, but because opportunities elsewhere are narrowing. “They may feel they have few alternatives for deploying capital at scale,” he said. “That does not make the trade attractive.”

Buy now, pay later lending has become a particular focus. Affirm, founded by PayPal co-founder Max Levchin, has relied heavily on partnerships with private credit firms and insurers to fund its growth. The company has struck deals with Sixth Street as well as insurers Prudential and New York Life to sell billions of dollars of existing and future loans.

Michael Linford, Affirm’s chief operating officer, said recently that favourable capital markets conditions were central to the company’s expansion strategy. “Right now the capital markets are extremely constructive for Affirm and for a lot of other names,” he told an investor conference.

Supporters of the private credit push argue that concerns are overblown. They say consumer debt, particularly credit cards, has historically delivered strong returns and that sophisticated data analytics allow risk to be managed more precisely than in the past.

The emergence of specialist firms underscores that belief. Fidem Financial, founded in 2018 by former Bank of America executive Sanji Gunawardena, focuses exclusively on consumer debt and describes itself as the first dedicated “credit card asset manager”. Since launch, the firm has acquired around $15bn of credit card receivables.

Fidem has now partnered with Blue Owl and a loyalty management platform linked to the remnants of Sears to launch a venture called Aress. The platform aims to help consumer brands issue co-branded credit cards, a space that banks have increasingly retreated from as regulatory capital charges rise.

Gunawardena said credit cards have long been among the most profitable lending products within banks. JPMorgan Chase’s credit card division, for example, generated an annualised return on equity of about 35 per cent in its most recent quarter.

However, regulatory capital requirements have made some segments of the market less attractive for banks, particularly lending to near-prime consumers. That has opened the door for private capital, which is not subject to the same rules.

Gunawardena argued that credit card debt is fundamentally different from BNPL loans, which he described as more transactional and often linked to riskier borrowers. “Consumers prioritise paying their credit cards,” he said, while BNPL instalments are more discretionary and more vulnerable in a downturn.

Critics remain unconvinced. They warn that private credit firms lack the long operating history in consumer finance that banks possess and may underestimate how quickly losses can mount when unemployment rises or consumer confidence falters. They also note that many funds are marketing these strategies to investors on the basis of stable returns, assumptions that could be tested if defaults increase.

For now, the flow of capital continues. As banks retreat and private credit managers expand their remit, consumer debt has become one of the industry’s fastest-growing frontiers. Whether that growth reflects disciplined innovation or excessive risk-taking may only become clear when economic conditions turn less forgiving.