In the past three years, the amount of personal loan debt Americans are carrying has almost doubled.
The total owed on personal loans grew from $76 billion in 2015 to $125.4 billion in mid-2018, according to statistics published by credit bureau TransUnion. The number of personal loans hit 20 million in the second quarter of 2018, compared to 13.4 million the same period in 2015. The average debt per borrower was $8,198; and the average balance of a new unsecured personal loan was $6,443, according to Transunion.
What’s feeding this demand? Debt consolidation was the stated goal for 61% of borrowers who had an average loan amount of $12,670 for overall debt consolidation and $14,107 average loan amount for refinancing credit card debt in particular, according to personal finance site LendingTree.
The good news is that while personal loan rates are up, delinquencies are not, with only 3.21% in default according to TransUnion. Older generations have the lowest default rates, while Gen Z is leading the pack in 60+ days past due with a default rate of 5.61%.
Borrowers used personal loans to manage existing debt along regional lines, with New Englanders being the most likely to do so and those in Mississippi, Louisiana and Arkansas the least likely to, according to statistics. Consumers with very high or very low credit scores were less likely to take out a personal loan to manage their existing debt.
Borrowers who had scores below 600 tended to use loans for everyday or medical expenses, while those with scores between 600 and 750 were the most likely to get loans for debt consolidation and credit card repayment. Borrowers with the highest credit scores preferred to use personal loans for home improvements and business purchases.
Personal loans don’t require you to put down collateral and they offer a fixed interest rate and monthly payment schedule. They’re a popular choice for paying off credit card debt because they can have a lower interest rates than credit cards. It pays to shop around for the best interest rates because they can vary from as low as 3.99% to 35.89%, according to LendingTree, depending on your credit score, income and debt-to-income ratio.