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While only a fraction of Americans have personal loans, these credit products are the fastest-growing type of consumer debt today. Consumers considering taking out personal loans generally want to use them to pay off other existing debt or to fund a large purchase.
Borrowers in the U.S. have over 36 million outstanding secured and unsecured personal loans, totaling $291 billion, according to Experian data from the fourth quarter (Q4) of 2018. That's a 12% increase from the year before and is more than double the growth seen by any other type of consumer debt product.
As part of an ongoing look at personal loans in the U.S., Experian surveyed consumers who either were considering taking out a personal loan or already had one to find out more about their reasons for doing so. Read on for our insights and analysis.
Consumers Surveyed Have Specific Reasons for Considering a Personal Loan
While this may not come as a surprise, 74% of the 210 consumers Experian surveyed who did not currently have a personal loan but were considering getting one in the next five years said there was something specific in their life causing them to consider taking out one.
Nearly 40% of respondents cited debt consolidation as one reason they were considering taking a personal loan. This is a common strategy among people saddled with high interest debt, such as credit card balances, who are looking to save money on interest and streamline debt repayment. In this scenario, the consumer uses the funds from the personal loan to pay off high interest debt, leaving only the payment on the personal loan, which in many cases carries a lower interest rate.
More than a third of respondents—35%—said they were also considering getting a personal loan for a home improvement project. Twenty-seven percent of consumers indicated they may use the loan for a large purchase, and another 23% said they would consider using the loan for travel.
Most Consumers Use Personal Loans for Large Purchases and Debt Consolidation
In addition to those who were considering a personal loan, Experian surveyed 369 consumers who already had a personal loan and found the following:
- 28% said they used the loan for large purchases
- 26% said they used the loan for debt consolidation
- 17% reported using the loan for home improvements
- 9% said they used the loan to refinance existing debt
- 30% reported using their loan for another reason not listed above
In line with the survey group that reported similar plans if they were to get a personal loan, the majority of those who already had one reported using the funds on either a large purchase, debt consolidation or home improvement.
Among those who offered written responses on specific ways they used their personal loan, reasons cited included purchasing or repairing a vehicle and paying medical expenses.
Majority of Consumers Reported Getting Personal Loans From Conventional Banks
Of the 369 respondents who reported taking a personal loan in the past, 67% of them said they received the loan from a conventional bank. Another 18% reported using an online-only lender to take the personal loan.
When split out by age, the majority of respondents who reported using a web-based lender were 44 years old or younger. A larger portion—25%—of survey participants between ages 18 and 44 reported using an online-only lender, compared with only 14% of those 45 and older.
Just under 6% of respondents reported getting their personal loan through a credit union, citing having an existing account and getting lower rates than they would have with a conventional lender as their main reasons for doing so.
Personal Loans as a Versatile Financial Tool
Among the consumers surveyed that were either considering or had already taken a personal loan, the responses showed that consumers consider personal loans to be a versatile tool that they can use in times of need. Once approved for a personal loan, there are often no stipulations as to what the funds can be used for, and as a result, the respondents showed varied use.