Personal Loan Debt Statistics During The Pandemic Smart change: personal finance
Average personal loan debt per consumer
Loan balances also increased in 2020, but barely. The average loan balance increased by 1.2% – $ 199 – per consumer between 2019 and 2020. You can come to this conclusion by looking at the percentage change in total debt outstanding (6%) and the number total accounts (8%). If the number of accounts remained stable but the total outstanding debt increased, this would have resulted in a larger increase in the average loan balance.
While consumers opened 3.1 million new personal accounts in 2020, that figure was lower than the number of accounts opened in 2019. demand – was down 26.5% in 2020 from 2019, according to a report by Credit Karma.
Average personal loan size
The average amount of personal loans also declined during the pandemic. In May 2020, just two months after the declaration of the Covid-19 pandemic, the amount of loans began to decline. As of December 2020, the average loan amount was $ 4,815, which is about 20% – or $ 1,197 – down from January 2020, according to Credit Karma.
However, “there is a typical seasonal decline towards the end of the year of each year,” according to Credit Karma. “The drop could pretty well be related to this seasonal trend.”
While the decline in loan amounts in December may have been a seasonal trend, the decline that began in May does not appear to be. This could have been due to the tightening of qualifying conditions for lenders and the number of loans they were willing to make.
Comparing May to June (the period in which the 2020 decline began) for 2019 and 2020 gives a more accurate picture of the initial impact of the pandemic. In May 2019, the average loan amount was $ 6,099, while in June 2019 it was $ 6,137, an increase of $ 38. Conversely, in May 2020, the average loan amount was $ 6,509 and that of June 2020 was $ 6,117, a decrease of $ 390.
Common uses of personal loans
Given the slowdown in the growth of personal loans, you might think that the pandemic has changed the way consumers use personal loans. This does not seem to be the case.
Consolidate debt or refinancing credit card debt remained the main reason for apply for a personal loan, just as it was before the pandemic began, according to Credit Karma. Borrowing for home improvement projects increased slightly after the start of the pandemic, which may reflect more people starting home improvement projects while in quarantine in their homes.
Credit scores among personal loan holders
Although unrelated to overall personal loan debt, credit scores among personal loan holders, provide an overview of how lenders qualified the loans. Lenders have started to tighten their qualification requirements at the start of the pandemic between March and April.
When the pandemic hit, people with personal credit scores between 600 and 659 saw the biggest drop in approvals. Additionally, data from TransUnion shows that the average credit score of consumers with open personal loans increased during Covid-19. In December 2020, the average score was 643.
Obviously, lenders tend to give loans to those with higher credit scores, as higher scores are a sign of financial responsibility. Although it is not impossible to obtain a personal loan with bad credit During the pandemic, as evidenced by the average credit score of loan holders who are in the fair credit band, this is a bigger challenge than it was in December 2019.
Personal loan vs other debts
Americans have also changed their ways with other types of debt in 2020.
Revolving credit is financing that you can reuse when you pay off your balance, like credit card, personal lines of credit and Home equity lines of credit (HELOCs). Non-revolving credit, on the other hand, is a lump sum amount that you pay off in fixed monthly payments and that you cannot reuse once paid off. These accounts include auto loans and all other non-revolving loans, such as personal loans and loans for mobile homes, education, boats, trailers or holidays.
Revolving debt reached $ 974.9 billion in 2020, a decrease of 10.55% – $ 115.1 billion – from $ 1.09 trillion in 2019, according to the Federal Reserve. In short, people started paying off credit card debt in 2020.
On the other hand, non-renewable debt hit an all-time high of $ 3.20 trillion in 2020, up 3.9% – $ 120 billion – from 2019.
“While personal loans continue to be a great option for many clients, clients have other options,” says Matt Lattman, vice president of personal loans at Discover. “For example, many consumers who own homes and want to renovate have taken advantage of low mortgage rates and used home equity loans. “
How will personal loans change in the future?
Personal loans are still a common funding method for people looking to access additional cash. While we cannot predict the future, trends indicate that personal loan debt will continue to rise in the years to come. However, the economy will play a key role in how lenders provide these loans and in the number of Americans who will need to access financing.