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Personal loans were the fastest growing category of debt in 2019, but new data from Experian has revealed that has changed in 2020. While personal loans saw a 12% year-on-year increase the other in 2019, the category only grew by 1% in 2020 (the slowest for any debt category last year) with fewer people taking out loans.
Chargebacks have also seen a dramatic decrease, with 27% fewer accounts past due for 30 days or more. On average, personal loan balances were $16,458 in the third quarter of 2020.
Nearly a quarter (22%) of American adults have a personal loan, according to the credit bureau. Baby boomers led the pack in 2019 with the highest personal loan balances on average ($19,253 in Q2).
Online marketplaces like Upstart have made it easier to apply for and qualify for flexible loan options, and online lenders like LightStream and Discover Personal Loans offer alternative ways to finance big expenses like weddings and home renovations.
Here are the top reasons people take out personal loans, using data from a 2019 Experian survey:
- Big purchases: 28% of respondents
- Debt Consolidation: 26% of respondents
- House upgrades: 17% of respondents
- Debt refinancing: 9% of respondents
- Another reason (not listed): 30% of respondents
The average FICO® The score of a person with a personal loan in 2020 was 689, which is considered a good credit score.
Find the best personal loans
If you’re considering a personal loan, take a look at your choices online and at more traditional banks. Experian found that around two-thirds of borrowers surveyed in 2019 (67%) always got their loan from a conventional bank, while 18% opted for an online-only lender.
Online lenders are known to have less rigid applications and therefore more accessible for people with fair or average credit. And consumers with good credit scores can also benefit from non-traditional credit approval policies offered by companies like SoFi, which uses a job offer as proof of income (starting within the next 90 days).
However, it is important to remember that loans are not free money. A form of installment credit, the personal loan must be repaid in regular installments over a fixed period. Your interest rate depends on your credit score, income and borrowing history. Most lenders require you to make payments within 30 days of obtaining the funds.
Before applying for a personal loan, consider the total amount you’ll pay over the lifetime (including interest and fees) and whether you want to be responsible for making a monthly payment until it’s paid off . Also consider the type of return you get on the investment (for example, a car loan comes with an asset, while a vacation loan only leaves you with memories and a monthly bill).
Also look for other sources of cash before making the decision to borrow. A side hustle can help you save some extra money, or maybe a friend or family member can help. You can also consider a 0% APR credit card, which would allow you to pay for the purchase without interest over a period of six to 20 months.
Consult our list of 10 questions to ask yourself before taking out a personal loan,
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.