Car loans. Student loans. Mortgages. Credit
card debt. These are the kinds of debt that often get top billing in headlines
and stories about those who have financially overextended themselves.
But there’s another kind of debt that’s
growing, according to the latest consumer debt study from Experian,
the consumer credit reporting company, and those are personal loans.
According to Experian, personal loans are the
fastest-growing kind of loan debt. In the fourth quarter of 2018, existing
personal loan debt totaled $291 billion, up 11.4% from the same quarter in
2017. That rate, according to the report, grew faster than auto loans, credit
cards, mortgages and student loan debt.
a personal loan?
Personal loans can be secured or unsecured.
With a secured loan, the borrower uses a car,
a home or other property as collateral. If they can’t pay back the loan, the creditor
can take possession of the item pledged to recoup their money.
With an unsecured loan, the borrower promises
nothing as collateral. Instead, they’re able to secure the loan based on their
creditworthiness. It may be difficult to get an unsecured personal loan if your
credit score is low.
When you sign a personal loan, you’ll be
agreeing to make set payments until the debt is fully paid off. Paying off a
personal loan is not like a credit card payment where you have the option of
paying only the minimum. You must cover the personal loan bill in full each
people use personal loans?
Personal loans are generally used to
consolidate debt, start a home project, pay off medical bills and cover other
large purchases, such as a wedding or a move. These loans once were considered
a “last option” for people in debt, according to the Experian report.
But they’ve grown increasingly popular thanks,
in part, to a surge in new online lenders and financial technologies that make it easier to secure
a loan. More than 40 percent of all new personal loans come from several
startups, according to Experian.
What’s more, the company says, Americans are
more confident about their ability to pay off the loan because of a steady
economy and low unemployment rates.
much are people spending on personal loans?
Right now, nearly 11 percent of adults in the
United States hold about 36.8 million outstanding personal loan accounts.
The average personal loan balance comes out to
$15,143 with an average annual percentage rate of 9.37%. Monthly payments come
out to $353 on average. Consumers in Washington had the highest average
personal loan balance of $27,729. Hawaii came in the lowest at $12,638.
are the pros and cons of a personal loan?
A personal loan can be a lifesaver for some at
just the right moment when they need to pay off other debt or face an
unexpected home repair or expense.
These loans, however, should be used
cautiously. Some personal loans, especially unsecured ones, can have high
interest rates and cost you more money in the long run. So, it may be a better
idea to save up for that fancy vacation and take it in a couple of years
instead of using a loan to cover the expense.
you get a personal loan?
Experian has three tips for those considering a personal loan.
how they work: Be sure to read all the fine print to
ensure you can meet your obligations, including sending in your payments on
time and in full. If you can’t live up to your end of the loan agreement, the
creditor could take you to court.
your credit score: If you’re seeking an unsecured
loan, you’ll have a better chance of getting it if your credit score is high.
You’ll want to know your own score before you start the process.
the requirements: Whenever you make a financial
decision, it’s critical that you know all the terms. For a personal loan, that
includes the interest rate and how long it will take to pay the loan off in
We’ll add in a fourth tip: Make sure you really need to borrow this
money. Before you sign any loan, ensure that your budget allows you to make
your monthly payment and take a hard look at your own finances to determine if
the loan is even necessary.
If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. Contact us today for a free financial assessment with one of our certified credit counselors.