The sudden collapse last fall of a number of American companies backed by private loans has shone a spotlight on a fast-growing and opaque area of Wall Street lending.
Personal lending, also known as direct lending, is a collective term for lending by non-bank institutions. The practice has been around for decades, but grew in popularity after regulations following the 2008 financial crisis discouraged banks from servicing riskier borrowers.
That growth – from $3.4 trillion in 2025 to an estimated $4.9 trillion in 2029 – and the September bankruptcies of auto companies Tricolor and First Brands have encouraged some prominent Wall Street figures to sound the alarm about the asset class.
JPMorgan Chase CEO Jamie Dimon warned in October that credit problems are rarely isolated: “If you see one cockroach, there are probably more.” A month later, billionaire bond investor Jeffrey Gundlach accused private lenders of making “garbage loans” and predicted that the next financial crisis would come from private loans.
While fears about private credit have eased in recent weeks with no further high-profile bank failures or losses reported, they have not completely subsided.
Companies most closely linked to the asset class, such as: Blue Owl Capitaland alternative asset giants Blackstone And KKRare still trading well below their recent highs.
The rise of personal credit
Personal credit is “lightly regulated, less transparent, opaque and growing very quickly, which doesn’t necessarily mean there’s a problem in the financial system, but it’s a necessary prerequisite for it,” Mark Zandi, chief economist at Moody’s Analytics, said in an interview.
Private lenders, such as Apollo Co-founder Marc Rowan said the rise of private credit has boosted American economic growth by filling the gap left by banks, providing good returns for investors and generally making the financial system more resilient.
Large investors, including pension and insurance companies with long-term liabilities, are seen as better sources of capital for multi-year corporate loans than banks, which are funded by short-term deposits, which can be volatile, private lenders told CNBC.
But concerns about private loans – which typically come from the sector’s rivals in government debt – are understandable given their characteristics.
After all, it is the asset managers who make personal loans who value them, and they may be motivated to delay identifying potential borrower problems.
“The double-edged sword of private credit” is that lenders “have really strong incentives to look for problems,” said Duke law professor Elisabeth de Fontenay.
“But by the same token … they actually have incentives to hide the risk if they believe or hope that there might be a way out later,” she said.
De Fontenay, who has studied the impact of private equity and debt on American companies, said her biggest concern is that it is difficult to know whether private lenders are correctly labeling their loans, she said.
“This is a market that is extraordinarily large and reaching more and more companies, and yet it is not a public market,” she said. “We’re not entirely sure the reviews are accurate.”
For example, the collapse of the hardware store Renovo in November BlackRock and other private lenders held their debt at 100 cents on the dollar until shortly thereafter reducing it to zero.
Personal loan defaults are expected to rise this year, especially as signs of stress emerge among less creditworthy borrowers, according to a report from Kroll Bond Rating Agency.
And private borrowers are increasingly relying on in-kind support to avoid loan defaults, according to Bloomberg, which cited valuation firm Lincoln International and its own data analysis.
Ironically, although they are competitors, some of the private lending boom was financed by the banks themselves.
Financial enemies
By investment bank JefferiesJPMorgan and Fifth third When investors disclosed losses related to the auto industry bankruptcies in the fall, they learned the extent of this form of lending. According to the Federal Reserve Bank of St. Louis, bank lending to non-depository financial institutions (NDFIs) totaled $1.14 trillion last year.
On January 13, JPMorgan disclosed its lending to non-bank financial companies for the first time as part of its fourth-quarter earnings presentation. The loan category tripled from about $50 billion in 2018 to about $160 billion in 2025.
Banks are now “back in the game” because deregulation under the Trump administration will free up capital for them to expand lending, Moody’s Zandi said. This, combined with newer entrants into the personal lending space, could lead to lower lending standards, he said.
“You see a lot of competition now for the same type of lending,” Zandi said. “If history is any guide, this is a cause for concern … because it likely suggests weakening underwriting and ultimately greater credit problems in the future.”
While neither Zandi nor de Fontenay said they saw an imminent collapse in the sector, as retail loans continue to grow, their importance to the U.S. financial system will also increase.
If banks experience turmoil because of the loans they make, there is an established regulatory framework, but future problems in the private sector may be more difficult to resolve, according to de Fontenay.
“It raises broader questions about the safety and soundness of the overall system,” de Fontenay said. “Will we know enough to recognize signs of problems before they actually occur?”