The popularity of personal loans is rising once again in 2016. According to recent research from TransUnion, the number of people who take out personal loans has grown 18% from 23.07 million in the third quarter of 2013 to 27.34 million at the end of 2015. The credit bureau claims that there are now $82.52 billion in unsecured and $165.46 billion in secured loans.
Moreover,the results of a recent Bank rate survey shows that 1 in 10 American adults plans on taking out a personal loan in the next 12 months – and 18% from the potential personal loan borrowers are aged from 18 to 29 years old.
The rising popularity of personal loans might seem a little bit odd, taking into consideration other possible options. There are many specific loans (auto loan for cars, student loans for education, mortgage for a place to live) and, of course, there are credit cards. However, personal loans seem to win both attention and trust of the consumers. There are several reasons for such a state of things. First, personal loans are much more flexible than standard lending options. Second, they are usually offered for a short term and one can get easy personal loans not only from banks or credit unions, but also online.
Priyanka Prakash, a finance specialist at Fit Small business, however, does not fully approve the latest option: according to her, getting an unsecured loan might seem like a big win and an ability to borrow money with no strings attached,but there are some risks that come with it. One also should bear in mind that though there is no collateral needed to back the loan, lenders often require personal guarantees – so that in case you refuse or are not able to pay your debt on time, they could get your personal assets.
Education and development manager at American Consumer Credit Counseling Katie Ross supports her – unsecured personal loans often carry high interest rates, which leads to the necessity to pay a bigger amount of money each month. Inability to cope with monthly payments usually ends with penalty fees and as a result – one gets stuck deeper in financial problems than he used to be before he decided to get a personal loan.
TransUnion estimated the average personal loan balance from 2014 to 2015 and found out the growth by 7.1% (from $6,757 to $7,235). According to the bureau’s forecast for 2016, the average personal loan balance will rise another 5% this year. Though the speed of the rise seems to slow down a little, it still looks like the popularity of personal loans is going to be a trend in 2016. Should it be a reason to worry? Kevin Gallegos, a Vice President at Freedom Financial Network, thinks that the danger of personal loans is overestimated:
“Personal loans in and of themselves are not necessarily problematic. In fact, they can be helpful tools for many consumers using them to help pay off credit card debt,”he said.
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