It may come as a surprise to some, but unsecured personal loans are the fastest-growing debt product in the United States. From debt consolidation to funding home improvement projects, personal loans present a number of great opportunities for managing finances and funding large expenses.
In 2019, it was reported that personal loans were the fastest-growing debt product among American consumers, at double the rate of credit cards. TransUnion forecasts this trend to continue in 2020, with personal loan accounts continuing to grow at double-digit rates. Despite their emergence, personal loans account for just 2% of total U.S. consumer debt, highlighting the room for even more growth.
Thanks in part to the fintech revolution, lenders are offering great terms to consumers looking for unsecured personal loans.
Why are personal loans becoming more popular? Once considered a last resort, personal loans appear to be shedding that stigma, as a more common means to borrow or manage money. The growth of fintech has revolutionized the market for personal loans, with more personalized offers readily available for consumers searching online. On top of that, fintechs are providing loans that are easier to qualify for, compared to those from traditional banks.
One of the most common uses for a person loan doesn’t even involve funding a purchase—it’s debt consolidation. By using a personal loan to pay off existing debts, consumers can better manage their combined debt with one, simply monthly payment. While a personal loan can potentially offer a better interest rate than that of the previous debt (especially for people with good credit), consumers mainly consolidate to lower their monthly installment and repay the debt on terms that work better for them.
Home improvements are another popular use of personal loans. For example, rather than waiting to save for the cost of a new kitchen, a consumer can apply for a personal loan, fund the project immediately, and then pay back the lender at a fixed monthly rate. As home improvement projects can increase in cost over time, a personal loan makes sense for a borrower who is presently looking to grow their family or increase their property value.
As the industry evolves and technology makes it easier, consumers will continue to take advantage of personal loan offers that meet their financial needs. And since the market has plenty of room left to grow, it will be fascinating to see where personal loans go amid an emerging fintech landscape.
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