Americans Added $18 Billion in Personal Loan Debt in 2018. This Could Be Why

Man holding money
Carmen Mandato/The Penny Hoarder

While you weren’t looking, personal loans have quietly become more popular than they’ve ever been before.

In fact, they’ve surged to an all-time high in the United States, with Americans taking out a whopping $125 billion in personal loans as of 2018. That’s a huge jump from $76 billion as recently as 2015.

Personal loans are now the fastest-growing consumer-lending category in the U.S., outpacing the growth of auto loans, mortgages or credit cards, according to an analysis by the credit bureau TransUnion.

Why so many loans?

Online Lenders Now Account for 36% of Loans

In a nutshell, we’re attracted to the eye-popping convenience of getting a loan online.

Nowadays you can go online, input your information and within minutes find out how much of a loan you qualify for and the possible rate,” Greg Palmieri, a financial planner with the online lender SoFi, told The Penny Hoarder via email.

“Before, you would have had to wait on hold over the phone with your bank or physically go into your bank’s branch, fill out an application and wait to find out if you were eligible and then approved.”

Innovative financial technology — “fintech” — companies are driving the growth in personal loans, according to TransUnion’s data. Online loan marketplaces and peer-to-peer lending platforms have changed the game by serving up quick and easy credit.

Consider the following:  

  • Fintech companies originated more than a third of all U.S. personal loans in 2017, compared with less than 1% of them in 2010. That’s a huge change in only seven years.
  • When the total balance of all U.S. personal loans hit a record $125 billion in 2018, it was an 18% rise from the year before. That’s a big increase!

1 in 17 Americans Have a Personal Loan

It also helps that you can get these loans more or less anonymously.

“It’s far less intimidating than walking into a bank, sitting down with a personal banker and having to deal with the stress of not knowing whether you’re approved,” says J.R. Duren, a personal finance analyst and editor at consumer reviews website HighYa.

“It can be pretty embarrassing to sit across the desk from someone who tells you they can’t approve your loan.”

At this point, roughly 6% of U.S. consumers have an open personal loan, according to TransUnion’s data.

That’s about one out of every 17 Americans.

Why so many loans?

Some experts say that, in this era of rising costs and stagnant wages, more people are taking out personal loans because they have to. It’s their best option.

“Very simply, people are overextended. They have no margin in their finances, so when the unexpected happens, they have no cushion,” says Len Hayduchok, a certified financial planner and CEO of Dedicated Financial Services in Hamilton, New Jersey.

“Between house payments, school loans for themselves or children, medical expenses for parents and increases in health insurance premiums, people need more money to meet their needs and wants — and wages have not kept up with inflation.”

Freedom Is Spending Your Loan on What You Want

Others view it differently.

Lending expert Joe Toms, president of online lender FreedomPlus, believes personal loans are becoming more popular simply because of the freedom they offer — borrowers can use the loans for whatever they want.

Many borrowers, wary of credit card debt that can linger for years, are attracted by a personal loan’s ironclad payment schedule of 36 to 60 months, Toms says. It means they’ll have to stay on track, making sure they eliminate their debt.

Maybe that’s why more and more Americans are taking out loans.

“More consumers than ever are seeing value in a personal loan,” said Jason Laky, senior VP of consumer lending at TransUnion, “whether for debt consolidation or home improvement finance.”

Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. Can you loan him some money?