The consumer demand for flexible point-of-sale financing is on the rise—and this trend shows no signs of slowing. At the same time, the dynamic lending landscape continues to shift and evolve in line with market realities and customer needs.
In late 2024, US consumer debt reached a record level of $17.94 trillion, demonstrating strong borrowing activity. Despite this increase, debt delinquency rates and debt-to-income ratios are at some of their lowest levels in recent history, highlighting that consumers are prioritizing manageable terms and affordability more than ever.
To meet consumer demands for convenience and flexibility, more merchants are partnering with lenders to offer embedded lending solutions. This shift is reshaping popular merchant financing categories and driving new growth opportunities.
For lenders, identifying which financing options are gaining traction—and which are losing relevance—can help them better serve merchant partners and optimize their offerings for growth.
In this blog, we’ll explore three loan types expected to thrive in 2025 and three likely to decline. By aligning with these trends, lenders can deliver competitive solutions that support merchants and attract customers.
The lending landscape: Shifting trends and opportunities for 2024-2025
As the new year begins, lenders and merchants must adapt to a lending landscape focused on flexibility, affordability, and sustainability. Economic pressures, shifting consumer preferences, and technological advancements are creating both challenges and opportunities. Lenders who align their portfolios with consumer priorities can help merchants increase sales and build lasting loyalty. Let’s explore some of the key shifts that will shape the lending landscape this year.
Economic factors driving demand
Inflationary pressures and elevated interest rates have impacted the way consumers manage their household budgets, driving them to prioritize affordable financing options more than ever. Offerings that provide greater flexibility and more manageable repayment terms, like HELOCs, buy now, pay later (BNPL), and green loans, have all grown in popularity. Last year, HELOC balances grew 20% compared to the end of 2021.This trend is expected to continue shaping lending strategies, driving the demand for flexible and affordable solutions across sectors.
Regulatory shifts
The regulatory landscape is also evolving. Some governments have started to offer incentives for green lending, making it more attractive for lenders and borrowers alike. By working with lenders that proactively address these regulatory shifts, merchants can more effectively offer ethical, consumer-friendly financing options that strengthen customer trust and reputation.
Technological advancements
The integration of technology in lending—particularly embedded lending at the point of sale, continues to evolve, making financing a seamless part of the customer journey. Digital platforms now offer near-instant approvals and seamless payment options that reduce friction and simplify borrowing. The buy now, pay later model is especially popular in e-commerce and smaller retail settings, with 62% of users trusting BNPL providers over credit card companies. Furthermore, HELOCs and other larger loans are increasingly available through embedded lending options in sectors like home improvement. These advances mean more effective selling propositions and greater conversion rates for lenders.
Personalization and data-driven lending
As consumers expect more personalized products and services, lenders are leveraging data to tailor loan offerings based on individual spending habits, purchase history, and credit profiles. Personalization allows lenders to quickly provide pre-qualified offers, customized interest rates, and adaptable payment plans that meet specific consumer needs. For merchants, partnering with lenders that offer these personalized solutions can help them to not only attract more customers, but also to diversify their customer base.
Winners and losers: loan categories on the rise and in decline for 2025
Now that we have covered some of the trends shaping lending approaches this year, let’s discuss what they can tell us about which loan products will continue to grow in 2025, and which will likely decline.
Loan categories poised for growth
1. Home equity lines of credit (HELOCs)
Why they’re growing: High home values continue to enable homeowners to leverage equity for substantial purchases like home improvements, solar panels, and major renovations. HELOCs often provide lower interest rates compared to credit cards, making them an attractive option for financing big-ticket purchases that require significant up-front investment.
Opportunities for lenders: By partnering with merchants in industries like home improvement, lenders can promote HELOCs as a flexible, low-cost financing option that supports responsible spending.
2. Green lending
Why they’re growing: Sustainability is top of mind for many consumers, and government incentives for green initiatives—like energy-efficient appliances and solar panels—are driving demand. Retailers offering eco-friendly upgrades benefit from aligning with green financing options.
Opportunities for lenders: Green loans not only support environmental goals but also enhance brand value for both lenders and merchants by appealing to eco-conscious consumers. There is also the opportunity to work with federal grant money to create loan programs that incentivize green purchases.
3. Point-of-sale installment loans for medical and wellness services
Why they’re growing: Rising healthcare costs and limited insurance coverage for elective procedures make financing for medical and wellness services highly appealing. Installment loans allow patients to access necessary care without upfront payments.
Opportunities for lenders: By embedding installment options within healthcare and wellness provider systems, lenders can broaden access to care while enabling providers to serve more patients.
Loan categories likely to decline
1. Traditional second mortgages
Why they’re declining: Rising interest rates and the greater flexibility of HELOCs have made traditional second mortgages less attractive. Homeowners now prefer HELOCs for their adaptability and lower costs.
Strategic shift for lenders: Focus on HELOCs to better align with consumer preferences and drive conversions in sectors like home improvement.
2. High-rate short-term loans
Why they’re declining: Payday loans and similar high-cost products face growing regulatory scrutiny and declining consumer trust. These exploitative loans are being replaced by fairer alternatives, such as unsecured installment loans, which offer lower rates and clearer terms.
Strategic shift for lenders: Prioritize transparent, affordable lending solutions to build trust and attract borrowers seeking responsible financing options.
3. Financing for non-essential travel and entertainment
Why they’re declining: Economic uncertainty has shifted consumer priorities toward essential spending. Discretionary expenses like luxury travel are less likely to be financed, with consumers opting to pay out-of-pocket or delay purchases.
Strategic shift for lenders: Reallocate resources to categories that align with consumer priorities and offer stronger growth potential, such as health, wellness, and home improvement.
Optimizing your portfolio for growth
To remain competitive, lenders must focus on financing categories aligned with evolving consumer needs. By emphasizing high-growth areas like HELOCs, green loans, and medical financing, lenders can empower merchants to capture more sales and foster customer loyalty. Simultaneously, pivoting away from declining categories ensures a more customer-friendly, future-proof portfolio.
While the lending landscape continues to evolve, we are reminded that one thing will always remain the same: the importance of delivering solutions that resonate with today’s consumers and drive value for all stakeholders. If you’re a lender looking to diversify your portfolio for 2025 and better serve consumers and merchants, contact us to learn how the LoanStar team can support you on this journey.