3 Most Common Reasons for Taking Out a Personal Loan — Some May Surprise You
Written by
T. Woods
Edited by
Gary Dudak
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America’s personal loan debt plummeted in 2020 due to the COVID-19 pandemic , after an almost-decade of steady growth. However, since 2021, our personal loan debt has steadily increased by nearly $100 billion, per a recent breakdown by Lending Tree.
The American personal loan debt totals jumped to $167 billion in 2021, $220 billion in 2022, $245 billion in 2023 and so far — with one quarter left to go — have reached $246 billion in 2024. That’s exactly $200 billion more in debt than in 2011, when numbers were at their lowest in 15 years at $46.4 billion.
Why the exponential increase? Why are 23.9 million Americans taking out such enormous amounts in personal loans? Let’s take a closer look.
The Debt Breakdown
First, some context. While these numbers are dizzying, it should be noted that personal loans are only 1.4% of all consumer debt in the United States — quite literally, as Lending Tree notes, the “smallest sliver” of all American debt. Mortgage loans make up the most amount of debt at 72.5%, with auto loans (9.1%) and student loans (8.9%) being in second and third place.
As for the reasons behind the spike in personal loans, here are the top three:
- Paying down other debts
- Paying bills
- Home improvement
Lending Tree notes that over 50% of all such debt is actually used to pay down other debts. Specifically, 39.9% of personal loans are used for debt consolidation with an additional 11.4% for credit card refinancing.
Elsewhere, 8.1% of personal loan debt is used to pay everyday bills, and another 7.2% is used for home improvement. Given that over 70% of all consumer loan debt is tied to mortgage loans, it makes sense that folks would want to keep up with home improvements.
While personal loan debt is indeed a sliver of the overall consumer debt in America, its numbers are expected to continue to rise in order to match growing credit card and mortgage loan debts. If you’d like more info on paying off your personal loans, check out these strategies anyone can use to pay off debt.
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