This was the average personal loan balance in 2021
The number may surprise you.
- A personal loan allows you to borrow money for any purpose.
- Although this may be an affordable borrowing option, it is important to try to minimize your debt.
- Evaluate your needs to determine the ideal loan amount to take out.
If you need cash on the fly, you have a few options. You can charge a balance on your credit cards, but then you risk accruing interest and damaging your credit score in the process. You can also borrow against your home’s equity if you own a home, but this won’t work if you’re renting.
So many consumers turn to personal loans when they need money and don’t want to pay exorbitant interest on the amount they need to borrow. Personal loans are very flexible in that you can take out one and use that money for any purpose. And, they often close quickly, so if your need for cash is dire, you don’t have to wait weeks for that cash. On the contrary, you can sometimes get your money back within days.
But it is important not to overdo it when taking out a personal loan. The more you borrow, the harder it may be to repay that amount.
What have Americans borrowed in 2021?
Last year, the average personal loan balance rose to $17,064, Experian reports. This represents an increase of 3.7% compared to 2020.
Now, at first glance, this may seem like a lot of money. But don’t forget that personal loans are often used to renovate a house or cover other similarly important expenses. It is therefore easy to understand why Americans increased their balances last year and borrowed so much.
The pandemic has forced many people to spend more time at home. Thus in 2020 and 2021, many owners have decided to renovate to make their living spaces more comfortable. This could explain why personal loan balances have increased.
How much personal loan should I take out?
No matter what type of debt you take on, your goal should be to borrow only what you need, not more. The higher your balance, the more interest you will pay and the more difficult your loan may be to track.
If you are considering a personal loan, think about what you need the money for. Maybe you recently racked up $5,000 in medical bills and need a loan to pay them off. In this case, borrowing $5,000 seems reasonable.
But if you’re taking out a personal loan to renovate your home, try to cut your costs before you apply. You don’t want to borrow $20,000 if you really only need $12,000.
How to save on a personal loan
Unlike other types of loans, such as mortgages and auto loans, personal loans are unsecured, so they are not tied to a specific asset, such as a home or vehicle. As such, it’s important to have a good credit rating when you apply for a personal loan, as the higher this number, the more competitive the rate you could get. And the lower that interest rate, the cheaper your loan is likely to be.
That doesn’t mean you won’t qualify for a personal loan if your credit isn’t as good. But in this case, you should expect to pay a higher interest rate on the amount you borrow – and that’s all the more reason to do your best to keep your loan amount to a minimum.
The Ascent’s Best Personal Loans for 2022
Our team of independent experts have pored over the fine print to find the select personal loans that offer competitive rates and low fees. Start by reviewing The Ascent’s best personal loans for 2022.