Curve

Top 12 reasons more people are using personal loans

Peter Warden
The Mortgage Reports editor

Personal loans emerging as a common financial tool

Personal loans are gaining popularity. Credit bureau Experian reckons the number opened in 2017 was 11 percent higher than a year earlier.

And it’s not hard to see why people like them. They’re affordable, predictable and widely available. And they’re cheap (often free), quick and easy to set up. Better yet, you can use the money for any purpose.

Often, they make more sense than getting a cash-out refinance, home equity loan, or opening new credit cards.

Are personal loans the future bedrock of personal finance? They just might be.

Check my eligibility for a personal loan up to $100k * (Sep 22nd, 2019)

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Survey reveals common personal loan use cases

But what purposes are most popular? In other words, why do people sign up for personal loans? A 2017 survey by Discover said:

  • 68 percent of personal loan holders said it helped them accomplish their financial goals.
  • 70 percent of people said that taking out a personal loan made them feel financially responsible.
  • 22 percent selected a personal loan for lower interest rates compared to other borrowing options
  • 21 percent said the quick turnaround of funds.
  • Other benefits included no collateral required, fixed interest rates and fixed monthly payments.

The benefits to personal loans are stacking up.

Personal loans: top 7 reasons people use them

That Discover survey was followed in 2018 by a Twitter poll by USA Today. They had different results but plenty of common themes.

Following are the top reasons people gave for taking out personal loans included.

1. Major medical expense

This topped the Discover survey but came fourth in USA Today’s Twitter poll. But you can see how attractive personal loans would be to those facing a sudden medical need.

With more and more hospitals and clinicians requiring “point-of-service collections” (payment upfront from those who are underinsured or uninsured), many have little choice but to borrow to fund treatment.

Meanwhile, financing offered in doctors’ offices and hospitals often comes with “gotcha” clauses (watch out for “deferred interest”) that can trap the unwary. So personal loans are often the smartest choice.

Check my rate for a personal loan to pay for medical expenses (Sep 22nd, 2019)

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2. Debt consolidation

This was first in the Twitter poll and second in the Discover survey. So overall it may be the No. 1 reason people turn to personal loans.

Experian says you may be able to pay down your student loan debt more quickly and in the long term save money with a personal loan. But you’d have to explore this carefully before you pushed the button.

More common are problems with plastic. It’s so easy to run up unmanageable debt on store and credit cards that many people find themselves juggling multiple accounts and barely having any money left at the end of each month. Personal loans can help because they typically provide a single, more affordable payment.

But that only works if you stop running up your card balances. Continue to run up balances and you’ll likely end up worse off.

Check my rate for a personal loan for debt consolidation (Sep 22nd, 2019)

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3. Home renovation

This was third in the poll but nowhere in the Discover survey. Borrowing to renovate your home can be a sound investment, depending on what project you undertake.

But are personal loans your best bet? It largely depends on how much you’re spending. If it’s a couple of hundred dollars, you might prefer to pay cash or with plastic. If it’s tens of thousands, you should check if you’d better off with a home equity product or cash-out refinance. But for medium-sized projects, those personal loans usually look good.

Check my rate for a personal loan to pay for home renovation (Sep 22nd, 2019)

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4. Fund a start-up or existing small business

This ranked third in the Discover survey. And you can see why. Keeping cash flowing is a challenge in most start-ups and plenty of established businesses. But getting commercial financing when you need it often proves impossible.

Of course, personal loans are just that: personal. So you’ll be on the hook for the borrowing. But it may be worth it to keep your venture afloat.

Check my eligibility for a personal loan to pay for business expenses (Sep 22nd, 2019)

*TheMortgageReports and/or our partners are currently unable to service the following states – MA, NV

5. Unexpected event

This is pretty vague. But we all know what an unexpected event looks like: the car must be repaired; you have to visit the emergency room; the HVAC fails during a heatwave …

This is stuff you’d like to pay from your emergency fund. But a 2019 survey says only 40 percent of Americans have $1,000 saved for such events. And personal loans often let you have the money you need within 24 hours.

There are many online sources from which to start the application immediately. Start at the link below.

6. Wedding

The survey found only 3 percent of respondents saying they’d taken personal loans to fund a wedding. Which is surprising, given that The Knot reckons the average wedding cost $33,931 in 2018. Are only the rich getting married nowadays?

If you’re not rich and you or an adult child are getting hitched, you might want to check out personal loans.

Check my rate for a personal loan to pay for wedding expenses (Sep 22nd, 2019)

*TheMortgageReports and/or our partners are currently unable to service the following states – MA, NV

7. Vacation

When it comes to reasons for getting personal loans, more than twice as many survey respondents (7 percent) identified vacations than weddings. Weird, huh?

Except, according to one 2018 survey, the average cost of a domestic vacation was $1,145 per person — or $4,580 for a family of four. Go for first-class travel and swanky hotels and you could easily get into five figures or more. And that’s before you even think of foreign destinations. So maybe it’s not so weird.

Check my eligibility for a personal loan to pay for vacation expenses (Sep 22nd, 2019)

*TheMortgageReports and/or our partners are currently unable to service the following states – MA, NV

Five more reasons people use personal loans

Those seven exhaust the survey and poll’s information on why people get personal loans. But, anecdotally, there are many, many more. Here are just five:

8. Funeral expenses — When you’ve tragically lost a loved one, you want a quick and easy way to settle funeral costs.

9. Major life event — Birth, graduation or milestone birthday or anniversary. It’s time to party! And perhaps buy expensive gifts.

10. Buy a hard-to-finance car or valuable — You may find it hard to get an auto, boat or RV loan on a classic or older vehicle or craft. Personal loans come with no such restrictions

11. Vet bills — You won’t get this if you don’t love animals. But this writer would rob a bank before he saw one of his animals suffer. A personal loan would keep him out of prison

12. Tax debt — You really don’t want the IRS breathing down your neck. Perhaps you can borrow to get straight with your friendly collector

If you’re facing any of these dozen issues (or a different one), and you need to borrow, you should definitely get quotes for personal loans.

Check personal loan rates now

Personal loans are a fantastic means of funding specialized needs quickly.

Below, you’ll find a link that directs you to some of today’s top-rated personal loan providers.

Check my eligibility for a personal loan up to $100k * (Sep 22nd, 2019)

*TheMortgageReports and/or our partners are currently unable to service the following states – MA, NV