2 Consumer Loan Stocks to Buy on Strong Industry Catalysts

Falling interest rates and easing lending standards are brightening the outlook for the Zacks Consumer Loans industry. The Federal Reserve’s interest rate cuts and signs of decent economic growth are expected to sustain and even boost loan demand, supporting top-line growth.

While improved consumer credit scores and looser lending criteria are expanding the borrower base, weakening consumer confidence is a concern. Despite several credit quality metrics creeping above the pre-pandemic levels, lower rates will likely aid repayment capacity. Hence, industry players like Enova International, Inc. ENVA and Encore Capital Group, Inc. ECPG are worth buying.

About the Industry

The Zacks Consumer Loans industry comprises companies that provide mortgages, refinancing, home equity lines of credit, credit card loans, automobile loans, education/student loans and personal loans, among others. These help the industry players generate net interest income (NII), which forms the most important part of total revenues. The prospects of the companies in this industry are highly sensitive to the nation’s overall economic condition and consumer sentiments. In addition to offering the above-mentioned products and services, many consumer loan providers are involved in businesses like commercial lending, insurance, loan servicing and asset recovery. These support the companies in generating fee revenues. Furthermore, this helps the firms diversify revenue sources and be less dependent on the vagaries of the economy.

3 Themes Shaping the Consumer Loan Industry's Future

Interest Rates & Loan Demand: The Federal Reserve has lowered interest rates by 175 basis points (bps) since 2024 and signaled one more cut this year. Nonetheless, consumer confidence deteriorated in late 2025, given the concerns over jobs, income and high prices. In December 2025, confidence weakened for the fifth consecutive month, and the Expectations Index remained below 80 for 11 straight months, a level that historically signals potential recession. However, demand for consumer loans is likely to remain stable and even improve as rates fall. So, industry players are expected to witness modest growth in net interest margin (NIM) and NII going forward.

Lending Standards: With the nation’s big credit reporting agencies removing all tax liens from consumer credit reports since 2018, several consumers' credit scores have improved. This has raised the number of consumers for the industry participants. Further, easing credit lending standards is helping consumer loan providers meet loan demand.

Asset Quality: Falling interest rates will help borrowers to remain current on loan and interest repayments. Consumer loan providers, who build huge reserves to counter any fallout from unexpected defaults and payment delays, are now less likely to set aside a huge amount of money for potential delinquent loans. The industry players are, however, still expected to witness a marginal rise in non-performing loans, which will keep hurting their asset quality. At present, several credit quality metrics are trending above pre-pandemic levels.

Zacks Industry Rank Reflects an Optimistic Picture

The Zacks Consumer Loans industry is a 16-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #100, which places it in the top 41% of more than 240 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Over the past year, the industry’s earnings estimates for 2025 and 2026 have been revised upward by 37.6% and 16.8%, respectively.

Before we present a couple of stocks that you may want to add to your portfolio, let's take a look at the industry’s recent stock market performance and valuation picture.

Industry vs. Broader Market

The Zacks Consumer Loans industry has impressively outperformed the Zacks S&P 500 composite and its sector over the past two years.

The stocks in this industry have collectively skyrocketed 101.7% over this period, while the Zacks S&P 500 composite and the Zacks Finance sector have surged 49.2% and 42%, respectively.

Two-Year Price Performance

 

Industry Valuation

One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), commonly used for valuing consumer loan stocks because of significant variations in their financial performance from one quarter to the next.

The industry currently has a trailing 12-month P/TBV of 1.42X, above the median level of 1.04X over the past five years. This compares with the highest level of 1.43X and the lowest level of 0.74X over this period. The industry is trading at a considerable discount compared with the market at large, as the trailing 12-month P/TBV for the S&P 500 is 12.86X and the median level is 13.58X.

Price-to-Tangible Book Ratio

As finance stocks typically have a lower P/TBV, comparing consumer loan providers with the S&P 500 may not make sense to many investors. However, comparing the group’s P/TBV ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV of 6.07X for the same period is way above the Zacks Consumer Loan industry’s ratio, as the chart below shows.

Price-to-Tangible Book Ratio (TTM)

 

2 Consumer Loan Stocks to Bet on

Enova International: Based in Chicago, IL, Enova is a leading financial technology company focused on providing online financial services. The company caters to small businesses and capitalizes on its proprietary technology, analytics and customer service capabilities to underwrite and fund loans. 

Being an early entrant into online lending, the company has completed more than 64 million customer transactions and collected approximately 65 terabytes of consumer behavior data since its launch in 2004. This has enabled Enova to better analyze its specific customer base. 

Moreover, the company has been diversifying its operations. Some of ENVA’s financing products and services are installment loans, line of credit accounts and receivables purchase agreements. Also, the company has undertaken acquisitions to bolster its market share. This Zacks Rank #2 (Buy) company’s proprietary underwriting systems leverage advanced risk analytics, including machine learning and artificial intelligence. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for earnings for 2025 suggests growth of 39.5%. Also, ENVA’s shares have soared 63.7% in the past year. It has a market cap of $4.01 billion.

Price and Consensus: ENVA

Encore Capital: Based in San Diego, CA, ECPG provides debt recovery and related financial services worldwide. Through its global subsidiaries, the company acquires portfolios of charged-off consumer receivables from leading banks, credit unions and utility providers, leveraging data-driven strategies to optimize collections and portfolio performance.

Encore Capital plans to leverage its leadership position in portfolio purchasing and recovery as well as credit management services to bolster its market share worldwide. Over the years, the company’s portfolio purchases and collections have increased, which supported its top-line expansion. 

With rising delinquency/charge-off rates in the United States, there is more supply of non-performing loans. This offers Encore Capital an additional opportunity to purchase portfolios and apply its analytics and collections capabilities for higher returns. Additionally, as interest rates decline and borrowers' ability to repay loans improves, the company’s collections will likely become steadier.  

This Zacks Rank #1 stock has gained 17% over the past year. ECPG’s earnings are expected to jump 93.5% in 2025. The company has a market cap of $1.3 billion.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

 
Enova International, Inc. (ENVA): Free Stock Analysis Report
 
Encore Capital Group Inc (ECPG): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research