What was America's fastest-growing type of consumer debt in 2018? You may think credit card debt, given that revolving debt has topped the trillion-dollar mark but according to new data from the credit reporting agency Experian, personal loans had the greatest percentage growth last year.
In 2018, outstanding personal loan debt grew by 11.9% to reach $291 billion. The growth rate of personal loans was double the growth rate of both credit card debt and student loan debt (5.9% and 5.8%, respectively). Personal loan growth rates nearly tripled the 4.3% increase in auto loans/leases and far outstripped the 2.8% increase in mortgages.
Personal loans are growing at a faster rate partly because they have more room to grow. According to data from LendingTree, personal loans only make up 1.5% of outstanding consumer debt and only 5% when mortgages are excluded. Student loan debt, credit card debt, and auto loan debt all have far greater outstanding balances.
Personal loans are popular across many generations, with older consumers holding higher balances than younger loan holders. Experian found that Baby Boomers had the highest average personal loan balance at $19,403, with Generation Xers and the Silent Generation right behind at $17,401 and $17,018 respectively. The average loan balance for Millennials was $12,574, while the youngest set of debtors (Generation Z) only has an average balance of $5,941.
Why are personal loans gaining in popularity? Consumers may be turning away from high-interest-rate credit card debt by financing large purchases with personal loans at lower rates, or they may be consolidating credit card debt to make payments more manageable.
While the average annual percentage rate (APR) across all credit cards is over 17.6%, data from LendingTree shows better average personal loan interest rates for customers with at least a good credit score. Rates for consumers with excellent credit scores (720-850) average from 10.3% to 12.5%, while consumers with good credit (680-719) see average rates from 13.5% to 15.5%. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
Even those with poor credit scores (below 639) see average personal loan rates from 28.5% to 32%. Consumers with poorer credit scores may not qualify for a credit card at all unless it's secured and a personal loan would be a great alternative to very high-interest payday loans.
Experian finds the average personal loan balance is $15,143, while the average APR is 9.37% and the average monthly payment is $353. For many consumers, that's a manageable payment and interest rate for the corresponding level of debt.
Recent increases in online lending options may be playing a role in personal loan growth. Experian found that online lending startups accounted for 40% of new personal loan originations. Their convenience and competitive rates often a result of lower overhead made online lenders an attractive choice in 2018 and are likely to do so in the future.
Is a personal loan right for you? Judge for yourself, based on the APR and payment schedules compared to other financing methods. Don't forget to shop around to find the best interest rate offers.
Consider how soon you're likely to repay the debt. If you can pay it off quickly, a credit card may be a better choice so you can gain rewards points but if you can't, the generally lower interest rates of personal loans make them a sound choice.
A personal loan is still a debt to be repaid it just comes with predictable payments that you can insert into your budget. If you think that you may have trouble making payments on time, you should find other alternatives.
If you are interested in a personal loan, visit our curated list of top lenders.
Originally Posted at: https://www.moneytips.com/us-has-nearly-37-million-active-personal-loan-accounts/505
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