Metro East Sun

The share of adults in America who reported doing at least ‘okay’ financially fell sharply in 2022 and was among the lowest observed since 2016, according to a recent study. At the end of 2022, 39 percent of adults stated they were ‘doing okay,’ and 34 percent said they were ‘living comfortably.’ This means that 73 percent are doing okay or better, while only one-third of Americans are ‘living comfortably.’ The decline in financial well-being is evident as the figure for adults who are ‘doing okay’ financially was 78 percent in October 2021 and 75 percent in October 2020. The last time the number was 70 percent or less was October 2016.

In response to these uncertain financial times, more Americans are turning to personal loans to manage their finances. Industry data reveals that nearly 23 million Americans owe a collective $232 billion in personal loans, which is a significant increase of 21.5 percent from the previous year's total of $191 billion. This surge in personal loans is substantial, considering that just six years ago, in 2017, Americans owed $117 billion in personal loans.

The average balance of a new personal loan has also increased. As of the fourth quarter of 2022, the average balance was just over $8,000, compared to $7,104 the previous year. The majority of borrowers are using personal loans to consolidate debt or refinance credit cards, with about eight percent borrowing for home improvements. However, the rise in personal loans has also led to an increase in delinquency rates, with an estimated 3.62 percent of personal loan accounts being 60 days or more past due in the second quarter of 2023.

One contributing factor to the increased reliance on personal loans is inflation. The rising cost of living has pushed more people towards borrowing to cover their regular everyday expenses. Additionally, financial technology (fintech) lenders have made obtaining personal loans easier than ever before. Companies like SoFi or CreditNinja entice customers with online offers that emphasize the speed and simplicity of applying for large loans.

Interest rates on personal loans vary depending on the borrower's creditworthiness. The average personal loan rate for a 24-month loan at a commercial bank was 11.31 percent as of early September. However, interest rates are expected to continue rising. While it is still possible to find personal loans with interest rates as low as 6.99 percent, the best rates are reserved for borrowers with excellent credit. On the other hand, borrowers with poor credit may face interest rates as high as 32 percent.

Despite the increase in personal loans, experts in the lending and personal finance industry do not perceive it as a major economic threat, at least not in the immediate future. Personal loans still constitute a relatively small portion of the total U.S. household debt, which surpassed $12 trillion this year. According to Goldman Sachs, the probability of a recession occurring in the next year is estimated to be 20 percent.

In Illinois, consumer loan borrowers are protected from predatory lending activities by the Predatory Loan Prevention Act. This legislation, enacted in January 2021 by the Illinois General Assembly as PA 101-658, allows the Illinois Department of Professional and Financial Regulation (DFPR) to regulate lending practices and cap interest rates charged by consumer lenders. The DFPR has released a Frequently Asked Questions (FAQ) information sheet on the new Act to provide clarity and guidance to consumers.

As personal loans continue to rise, it is crucial for individuals to carefully consider their financial situation before taking on additional debt. Seeking advice from financial professionals and exploring alternative options may help individuals make informed decisions about managing their finances effectively.

For additional details, please follow this link: https://repelik.com/2023/10/12/increase-in-new-personal-loans-show-finances-for-families-shaky/