Point of Interest
A recent Interest.com survey found that 1/4 Americans have taken out a personal loan in the last decade and nearly 90% are satisfied with their experience.
Taking out a loan has always been a popular way to handle unexpected expenses, but the COVID-19 pandemic has forced people across the world to reevaluate the way they manage their finances. With unemployment rapidly on the rise and the federal government stepping in with stimulus funding, people no longer have the regular income necessary to meet the many expenses of their lives. Bills like rent, mortgage, groceries and healthcare are all coming due, and people are looking for new ways to meet their expenses.
That’s why Interest.com partnered with YouGov, a research data and analytics group, to survey 3,999 Americans across the country and better understand borrowers’ experience with personal loans.
Here’s what we learned.
Personal loans are becoming more popular than ever
Nearly one in four American adults took a personal loan in the last decade, far exceeding other loans like student loans and business loans. In addition, borrowers reported that top reasons for taking out a personal loan were debt consolidation, home improvement and emergency expenses.
Our survey data showed that emergency expenses was the top reason why borrowers without a college education took out a personal loan. Borrowers with a college degree mostly took out personal loans for debt consolidation purposes and those with a post-graduate education utilized personal loans to fund home improvement projects.
Keep in mind that personal loans are one way to receive immediate funding to pay your bills. You can receive one lump sum upfront and then pay it back over time. Other types of loans such as emergency loans are a quick way to borrow money, but there is a price to pay with fast funding in a pinch. There are also home equity loans, title loans or home equity lines of credit, but note that these all leverage your home or vehicle as collateral.
If you are having trouble making ends meet and are considering a personal loan, make sure you check interest rates from different banks and financial institutions, so you don’t pay any more interest than you have to.
Almost 90% of borrowers are satisfied with at least one aspect of their personal loan
According to our survey, 89% of borrowers were satisfied with at least one aspect of their personal loan experience. Most borrowers were “very satisfied” with the overall process starting from the application, to repayment and customer service.
You can apply online for a personal loan and get approved in a matter of minutes, all without ever visiting a bank. Although these are great perks that benefit borrowers, it requires a level of responsibility and understanding prior to committing to a personal loan. Make sure you do your research, understand how personal loans work, and compare interest rates before signing the deal.
Most people borrow less than $10K and take 1-3 years to pay back their loans
Our survey data showed that although lenders offer personal loans up to $75K-$100K, the majority of people who borrowed money, took out less than $10,000. In addition, they reported it took 1-3 years to pay back their loans.
Keep in mind that lenders offer payment terms that vary from 1 to 7 years. When choosing the right personal loan, make sure you compare both interest rates and payment terms to lock in a monthly payment you’re comfortable paying with a low risk of default (missing a payment).
Remember, missing out on your monthly personal loans payment can negatively affect your credit score.
Personal loans aren’t just for people with good credit scores
Almost one-third of those we surveyed reported a fair to poor credit score. Naturally, their lower credit score means they are also paying significantly higher interest rates than borrowers with good and excellent credit.
Although a good credit score is encouraged to secure a lower interest rate, you can still get a loan with bad credit as lenders consider various factors such as your income and banking history. However, keep in mind that bad credit loans could end up being more expensive (as these come with higher interest rates) and consider improving your credit score before applying for a personal loan.
1/4 of borrowers couldn’t recall the APR (Annual Percentage Rate) on their loans. Knowing and understanding the true cost of borrowing money (i.e. APR) can save you money in the long run.
Wells Fargo is the most popular lender, followed by LendingClub and One Main
Based on our research, here are the top 5 most popular lenders offering personal loans:
With so many people needing large loans, Wells Fargo is understandably a popular choice given their capacity for larger loans. The powerhouse bank offers loans of up to $100,000 for certain borrowers and interest rates are fairly competitive. However, customer satisfaction is not the highest, so if you value customer service and support, Wells Fargo may not be your best bet.
The application process is simple and can be completed entirely online, and LendingClub offers a decision within minutes. In contrast to the lightning-fast transfers of other companies, LendingClub takes about four days to send funding, so it’s not a great pick if you’re in a hurry. It offers loans of up to $40,000, but APRs can be higher than many other companies.
OneMain is an excellent lender for those with poor credit, offering more reasonable rates than many other creditors with loans up to $20,000. It also offers quick turnaround with same-day funding for some loans.
With Discover, you can receive loans of up to $35,000 with flexible terms that you can choose yourself. One of the best parts is the lack of fees, saving you tons of money. You can also benefit from a 30-day money-back guarantee that will charge no interest on the loan if you pay the loan back in full within 30 days. However, Discover is a lender for borrowers with good credit, because it rarely offers bad credit personal loans.
Payoff is best known for credit card consolidation. It’s a great way to free up your credit by combining all of your outstanding debts into one loan that you can repay in up to five years. The interest rates are low, too, making it a more affordable option when you are trying to pay off a lot of debt.
Shopping for a personal loan
Keep these steps in mind when shopping for the best personal loan that will meet your specific financial needs.
- Check your credit.
It’s important to know your credit score before you begin shopping for your personal loan because it will help you narrow your search. Some lenders have strict rules regarding the accepted minimum credit score, so you can save time if you already know which banks will and will not work for you. There are also lenders that are more intentional towards granting bad credit loans.
- Gather your personal information.
When you apply for a personal loan, you will need to show that you are capable of repaying that money, so you will need to prove your income when you supply your other personal details.
- Shop for rates.
Rates can vary among lenders, so be sure to check rates from many different banks and financial institutions, so you don’t pay any more interest than you have to. You can read more about personal loans rates in our comprehensive lender review.
- Get prequalified.
While a pre-qualification is not an approval, it does enable lenders to perform a soft credit check. This way, they can determine if you might be a good fit for a personal loan.
- Check the fine print.
Before you commit to a personal loan, you want to be sure that there is nothing hidden in the fine print that is of concern. There could be extra fees or unreasonable terms that will not work for you and could cause trouble later on down the road.
What is a personal loan?
There are times in life when you need extra funds. Maybe you are looking for debt consolidation, need to cover a child’s tuition or there are unexpected home improvements that need to be handled immediately.
No matter the reason for your loan, a personal loan is a great way to get cash when you need it. These are typically unsecured loans that do not require collateral, using your credit score as a key factor when determining whether you are approved and what your interest rate will be. The interest rates are usually lower than the ones you would receive with a credit card or emergency loan, and you can repay your loan over time with monthly payments.
How can I get a personal loan?
You can receive a personal loan from three main types of lenders: a bank, a credit union or an online lender. Additionally, using an online marketplace can help you shop numerous lenders at the same time. To get started, you will need to provide certain information, such as your Social Security number, employment information and address history. Once you receive your offer, you can compare it against the others you receive to find the best APR and most favorable terms. It is also important to check the fine print for hidden penalties or payment requirements so you know what kind of arrangement you can expect long-term with your lender.
Are personal loans safe?
A personal loan is generally a safe way to receive a financial boost when you need one. It is important never to borrow more than you can reasonably repay because you will pay for this help in the form of mounting interest. High interest rates and unrealistic repayment terms from predatory lenders can quickly spiral you into more debt than you can repay. Not all lenders have your best interest at heart, so you should always do business with a reputable and reliable financial institution like the ones we recommend here.
When you exercise caution and find a reasonable interest rate with flexible terms that you can afford, a personal loan can be an enormous help in navigating life’s more serious bumps and bruises.
The survey was conducted in partnership with YouGov. All figures included within, unless otherwise stated, are from YouGov Plc. Survey total sample size was 3,999 adults across the United States. Fieldwork was performed online between November 21-27, 2019. The figures have been weighted and are representative of all US adults (aged 18+).