More Consumers are Using Personal Loans to Consolidate Debt, Report Shows

Alex Hamilton  |

The number of borrowers looking to consolidate debt with personal loans is rising, according to a report from Lending Tree. In November 2018, debt consolidation accounted for 37.35% of personal loan inquiries. Credit card refinancing accounted for 30.65%.

Combined, debt consolidation and credit card refinancing comprised of 68% of all loan inquiries in November 2018.

Many borrowers are also using personal loans to cover home improvement costs, which accounted for 5.96% of loan inquiries in November. Car financing accounted for 3.33% of inquiries, while medical expenses accounted for just 2%.

Vacations accounted for 1.17%, and home buying accounted for 1.43% of loan inquiries.

Offered APRs are up across the board, according to the report. The average APR offered to borrowers with excellent credit (a score of 760 or higher) was 9.62%. For those with good credit (a score of 680-719), the average APR was 18.52%. For those with fair credit (scores of 640-679), the average APR was 25.87%.

The top 10% of borrowers with excellent credit were offered an average APR of 5.21%.

By comparison, average APRs offered in November 2017 were 7.41% for excellent credit, 17.48% for good credit and 24.61% for fair credit.

For those with excellent credit, the average best loan amount requested was $20,484. Those with good credit requested, on average, a loan amount of $15,743.

Those figures are down from the previous year. Borrowers with excellent credit were offered $24,559 on average, while those with good credit were offered $16,068.

LendingTree’s report includes data from actual 36-month loan terms offered to borrowers with credit scores of 640 or higher.

Interest rates are rising across the board, as the Federal Reserve continues to raise rates. Personal loans from lenders will have higher rates overall, but consumers will also see higher rates on credit cards, mortgages, home equity lines of credit, adjust-rate mortgages and some student loans. The rate increases will increase borrowers’ monthly payments.

While the cost of loans is rising, those who are saving money will see an uptick in their balances. That increase is expected to be small, as rates on typical savings accounts and CDs have barely budged over the last year despite the Fed’s rate hikes.

Some online banks, credit unions and money market mutual funds may offer higher rates, as they are hungrier for deposits.

Experts say that for the first time in a decade, savers may actually earn a rate that is higher than the rate of inflation.

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