By W.B. King
After surveying 2,000 American borrowers in September 2023, Forbes Advisors found that 76% compared interest rates and fees from different financial institutions (FIs) before choosing a personal loan and despite interest rates remaining high, three out of four would consider using a personal loan in the coming year.
“Over 60% of borrowers said their personal loan improved their financial situation and 14% said it worsened their financial situation,” the survey noted. “All respondents think financial institutions should make qualifying for a personal loan easier.”
While 22% of those polled said they didn’t compare loan interest rates before choosing an FI, 54% compared at least three FIs before making a decision and 23% said they compared four lenders.
“Of the respondents who didn’t compare lenders, more than half got a lender recommendation from friends or family,” the report stated. “Another 45% didn’t compare lenders because it was too time-consuming or inconvenient, and 39% didn’t compare options because they received a loan offer in the mail.”
Essential and Non-Essential Loans
Respondents said they used the loan monies for numerous reasons including essential and non-essential. The leading reasons for taking out a loan was for medical bills (15.13%), home improvement projects (15.08%), debt consolidation (14.57%), vacation expenses (12.76%), unexpected expenses (12.41%) and making a large purchase (10.54%).
“Seventy-one percent said they used all of the personal loan funds for one reason, while 26% said they did not,” the report noted. “And a significant number of borrowers used loan funds in unplanned ways. About one-third of survey respondents said they only used 21% to 30% of their personal loan for its initial purpose, with a majority of the money going elsewhere.”
Three out of four respondents borrowed $10,000 or more, while 42% borrowed over $15,000. Loans under $10,000 represented 23% of those polled. “Baby Boomers, born between 1946 and 1964, had highest personal loan balances with $20,370, followed by Gen-X with $18,922, born between 1965 and 1980. Beyond that, on average, men carry 20% more personal loan debt than women,” the report noted.
In the Rears
Nearly 53% of borrowers missed at least one payment, with 40% not missing any payments. The balance either didn’t recall or preferred not to state. “Many borrowers had trouble keeping loans in good standing,” the report continued. “More than half of survey participants said they’d missed a personal loan payment. Traveling (28%), forgetting a loan payment due date (25.8%) and not having enough money to pay (24.7%) are the most commonly cited reasons for missed payments.”
Seventy-six percent of those polled said a personal loan was viewed as beneficial; 61% noted that it helped them pay off debts faster; while 57% noted it allowed them to better their credit scores (57%). “Fifty-two percent said it helped them cover basic expenses,” the report stated. “Just less than half of respondents said their personal loan helped them get caught up on overdue bills.”
Not all respondents felt the same. Fifty-four percent said their personal loan “negatively impacted” their credit score and 53% said they had to pay fees to get the loan, the report found. “Another 46% said their APR on the loan was too high and 45% didn’t get the loan amount necessary to pay for what they needed. Finally, 31% of participants said borrowing made them accumulate more debt than necessary.”
