The Booming Credit Trend Analysts Warn Could Become A Major Problem

While it may feel like the 2008 housing crisis lies in the distant past and on the other side of a global pandemic, some analysts believe history may be about to repeat itself. The main driver of this worry is the concerning nature of the private credit market. The market, unlike those that issue the types of predatory loans that will keep you poor, lies behind a door that blurs the line between bank and investment firm. While banks fell under heavy federal regulation in the aftermath of the recession that happened in 2008, private credit managers have been exempt from much of the legislation meant to prevent a widespread default on risky loans.

Since the financial crisis and the Dodd-Frank Act imposing heavier regulations on bank lending, both investment and lending in the private credit market have boomed, with its valuation hitting over $3 trillion, according to the Alternative Credit Council. While some consider the market quite stable, the recent bankruptcy of two auto companies, Tricolor and First Brand, has thrown this notion into question. Following their bankruptcy, it emerged that the companies had promised the same collateral on different loans from separate financial institutions, including private credit organizations. Fraudulent behavior and defaults like this are possible due to light prudential standards that allow firms to issue loans with less discretion and research. Analysists like Natasha Sarin, president of the Yale Budget Lab, believe this is a major problem — one that paints a picture of what could be if more loans in the unregulated private market start defaulting, as much of the investment in private credit firms comes out of consumers' pockets.

In an October 2025 interview with NPR, Sarin said, "... losses by these financial credit firms are ultimately going to fall to regular people." One major reason for this is the way private credit firms draw their money to back their loans.

Unlike banks, which issue loans backed by the capital of those who store their money there, private credit firms leverage private investment to create lending power. Per President Trump's Executive Order from August 2025, these private investments could come from people's 401(k)s, and Sarin says these funds could be at risk if loosely regulated loans go belly up all at once.

This lack of regulation is concerning, particularly for those who have experienced the 2008 crisis. "We are starting to see the same kind of slicing and dicing of literally everything. Think car loans. Think leases on AI data centers. Think of bills that are owed by plastic surgery patients. Literally everything, and turning it into allegedly relatively safe slices of financial securities," Sarin says. These relatively small slices are often assessed as safe investments, but in an economy with rising prices, experts say they could be risky. While some companies were able to come back from bankruptcy after 2008, the volume of money in private credit firms is causing worry that a crash could cripple the stock market, affecting both investors and businesses.