Private credit has become one of the busiest corners of finance. Pension funds, insurers and now wealthy individuals are pouring money into loans that never trade on an exchange. Meanwhile, fintech firms are building the data and distribution tools to serve them.

So we asked industry leaders two questions: why is private credit pulling in so much attention, and what are people overlooking? We wanted to hear from capital markets professionals, credit analysts and private credit operators. Cautionary views were welcome. Their answers, checked against the latest data, show that the biggest private credit risks sit in measurement and liquidity, not in the headline yields.

Fintechbits analysis

Why private credit is drawing so much money

The appeal starts with yield. The Cliffwater Direct Lending Index, which tracks middle-market loans, returned 9.3% in 2025. Most of these loans also carry floating rates, so they paid well while rates stayed high.

Size depends on who is counting. Morgan Stanley puts the global market at about $3 trillion at the start of 2025. However, official bodies use narrower definitions. The Federal Reserve, for example, counts about $1.4 trillion in the US.

Banks have not left the field either. Instead, they now lend to the lenders, which ties the two systems closer together. Wealth platforms add a third channel. Together, these flows spread private credit risks to a much wider group of investors than a decade ago.

“Private credit took off because it met a need the banks left behind. Banks pulled back from lending to middle-market firms, and private lenders could get money to those borrowers faster and on more flexible terms. Morgan Stanley puts the market at about $2 trillion in 2020 and roughly $3 trillion by early 2025.

The private credit risks people underrate are the marks on portfolios, and how far those marks differ from one firm to the next. Retail access is another worry. An asset class that used to belong to pension funds and other big institutions is now open to individuals through semi-liquid funds.

Private credit is sound where underwriting discipline held. The next two years will show where the hunt for yield cut corners on due diligence.”

Ankit Sarawagi, Curator, CFO Matrix

Marks that disagree on the same loan

His point on marks goes to the heart of private credit risks. Private loans do not trade, so managers value them using models, usually once a quarter. As a result, two funds can hold the same loan at very different prices.

PIMCO found that first-lien loans shared across business development companies (BDCs) carried valuation ranges of about 5.3 points at listed BDCs and 7.7 points at private ones. In September 2026, SEC staff also reminded funds to keep rigour in how they value private assets.

Smoothed returns are among the quieter private credit risks. Quarterly marks smooth out price swings, so private credit may look calmer than it really is.

“Three things are driving the attention: banks pulling back, investors wanting yield, and technology making private markets easier to reach and watch. Borrowers get faster deals and more flexible terms than a bank usually offers. Investors get an asset that can look less tied to public markets and pays well when rates are high.

Software matters here. It’s changing how loans are sourced, analysed, sold, monitored and reported. Better data, AI-assisted underwriting and digital investor platforms make an institutional asset feel scalable.

But private credit isn’t just a yield product. It’s an underwriting, liquidity, valuation and transparency product. In a strong market those private credit risks look manageable. In a downturn they get much harder to price.

The biggest worry is opacity. Most of these loans don’t trade, valuations are less clear, and outside investors can’t easily see how borrowers are doing. There’s also a liquidity mismatch when investors expect their money back faster than the loans can be sold or refinanced. The winners won’t just be whoever raises the most. They’ll be the firms with the clearest data, the tightest underwriting and the most honest reporting.”

Danila Vasilev, Founder, Tyrian Trade

Retail money meets quarterly exits

Liquidity is where private credit risks have already surfaced in 2026. Non-traded BDCs usually let investors redeem up to 5% of net assets each quarter. When requests run higher, payouts get rationed.

That happened in the first quarter. Apollo Debt Solutions and Ares Strategic Income Fund each received requests above 11% and paid out less than half of each one. Then, in the second quarter, requests across the sector reached a record 12.4% of net assets, according to Robert A. Stanger and Co.

Meanwhile, US policy is widening access. A Labor Department proposal would make it easier to offer private assets in 401(k) plans, which could carry private credit risks into retirement savings. The IMF warned this month that leverage and liquidity risks in private credit could amplify stress.

Fraud and quiet defaults

Collateral fraud is one of the sharper private credit risks. In 2025, auto lender Tricolor and auto parts maker First Brands collapsed. Prosecutors later charged executives at both firms, alleging that collateral was pledged to more than one lender. Those charges are allegations, and the defendants are presumed innocent. Still, JPMorgan’s Jamie Dimon warned that “when you see one cockroach, there are probably more.”

Defaults often stay quiet, too. Fitch’s US private credit default rate hit a record 6.3% in the year to August 2026. Most of those events were deferred interest or extended maturities, not bankruptcies. In other words, the loan stays on the books while the borrower pays later. That makes private credit risks harder to spot in headline default figures.

Servicing and other overlooked private credit risks

Not every risk lives in the loan itself. Collecting payments and keeping records over a loan’s life also takes work. In large corporate deals, agent banks and fund administrators usually handle that job. In smaller private lending, the servicer often matters far more. One respondent, whose firm services owner-financed property notes in Texas, sees that end of the market every day. Her view comes from small private loans rather than corporate direct lending, but the lesson travels.

“Private credit offers what public markets often can’t: yield, flexibility and direct relationships. At Mano Santa Note Servicing, we sit downstream of a lot of that capital. Once the deal closes, someone still has to collect payments, track escrow and keep the records clean. That’s usually where the cracks show.

One of the private credit risks nobody prices in is servicing. Origination gets the headlines, but the dull back-office work of managing a loan over its life is where portfolios quietly lose value. We’ve seen lenders build great underwriting models and then leak returns through sloppy payment processing, missed escrow reconciliations or compliance gaps.

Liquidity is the second risk. Private credit isn’t marked to market every day, so when investors need out, the bid is often thinner than the model said. Newer fund structures made raising money easier, not getting it back.

Third is regulation. Licensing and servicing rules vary from state to state, and platforms that scaled fast without compliance teams will feel it. My advice: vet your servicer as hard as your originator. The deal isn’t done at closing. It’s done when the last payment clears.”

Belle Florendo, Marketing Coordinator, Mano Santa

Where fintech fits

This is where fintech sees an opening. If the main private credit risks come from poor data, then better data is worth a lot. For example, LSEG agreed to pay $3.535 billion for Octus, a credit data provider, this month. On the same day, Cognitive Credit raised $40 million for its credit data and AI tools.

Tokenisation is growing as well, but from a small base. Funds such as Victory Park’s VALTS now put private credit on a blockchain. Even so, only about $7 billion of tokenised private credit can move freely on-chain.

What to watch next

Several tests of private credit risks lie ahead. Watch BDC redemption requests in the fourth quarter, and whether more funds cap or suspend withdrawals. Next, watch whether the Labor Department finalises its 401(k) proposal. Finally, watch how marks on software loans hold up as AI changes that sector, since software is one of the largest BDC exposures.

Taken together, the respondents agree on one point. Private credit risks are manageable when investors can see what they own. The firms that make the data clearer, whether managers or fintech providers, will decide how this market handles its first real downturn.

FintechBits covers payments, banking and fintech developments for readers in the US and UK. This article is for information only and is not financial or investment advice. Views expressed are those of the FintechBits editorial team.