Total U.S. Personal Loan Debt Increases 9.2%

In recent years, the landscape of personal loans in the United States has seen significant changes. Higher interest rates have altered how consumers use and perceive personal loans. More individuals are turning to personal loans to consolidate debt and finance major purchases, avoiding the higher rates associated with other financing options. This trend has been particularly noticeable since 2022, as growing credit card balances and rapid rate hikes have made personal loans a more urgent necessity for many.

Demand for Personal Loans Has Steadied

While the demand for personal loans surged in 2022, it has steadied somewhat in 2023. Consumers are still using personal loans to manage rising credit card rates, but the growth in new personal loans has softened. Despite this, the number of personal loans made in the 12 months ending in September 2023 was higher than in 2019, indicating a sustained interest in this financial product.

Average Personal Loan Balances Increase in Nearly All States

The average personal loan balance has increased in nearly all states, outpacing inflation by a significant margin. Although the 9% increase in 2023 is less than the 17% increase in 2022, it still represents a substantial rise. This trend is evident across various states, with some experiencing faster growth in balances than others.

State-by-State Analysis

For instance, states like Alabama, Arizona, and California have seen notable increases in average personal loan balances. In Alabama, the average balance grew by 7.7%, while in Arizona, it increased by 6.7%. California saw a 6.4% rise in average personal loan balances. These increases reflect a broader trend of rising personal loan balances across the country.

Average Balances Are Growing Faster Among Younger Generations

Younger generations are borrowing and owing more on average than older consumers. Generation Z and Millennials, in particular, have seen significant increases in their average personal loan balances. Generation Z’s average balance grew by 13.4%, while Millennials saw a 10.4% increase. In contrast, Baby Boomers and the Silent Generation experienced much smaller increases in their average balances.

Generational Breakdown

Generation Z (ages 18-26) saw their average personal loan balance increase from $7,684 in 2022 to $8,710 in 2023. Millennials (ages 27-42) experienced a rise from $15,101 to $16,669. Generation X (ages 43-58) saw their average balance grow from $20,677 to $22,259. Baby Boomers (ages 59-77) had a smaller increase, from $21,644 to $22,551, while the Silent Generation (ages 78+) saw their average balance rise from $18,211 to $18,547.

What Borrowers Can (and Do) Expect in 2024

Looking ahead to 2024, many consumers are aware of personal loans and plan to use them. In a recent survey, nearly half of the respondents indicated that they intend to use a personal loan in the upcoming year. Debt consolidation, major purchases, and emergency expenses are the most popular reasons for taking out personal loans.

Survey Insights

According to the survey, 57% of respondents (ages 21 through 65) have used personal loans in the past. Among these consumers, about one-third used a personal loan for debt consolidation, while another third used one for a major purchase. Looking to the future, 46% of respondents said they plan to use a personal loan sometime this year.

Why Are People Borrowing Personal Loans?

Consumers are turning to personal loans for various reasons, including debt consolidation, major purchases, and emergency expenses. Higher interest rates have made personal loans a more attractive option compared to other forms of credit. Fixed-rate APRs on personal loans offer consistency in monthly payment amounts and are typically lower than average credit card rates for those with good credit.

Impact of Higher Interest Rates

Higher interest rates are not only affecting consumers but also lenders. As borrowing costs increase, lenders are passing these costs on to borrowers. However, personal loans with fixed-rate APRs provide a level of stability that variable APR credit cards do not. This makes personal loans a more appealing option for managing debt and financing major purchases.

Conclusion

The personal loan market in the United States is evolving, with higher interest rates driving more consumers to use personal loans for debt consolidation and major purchases. While the demand for personal loans has steadied in 2023, the average balances continue to rise, particularly among younger generations. As we look ahead to 2024, personal loans will likely remain a popular financial tool for managing debt and financing significant expenses.

If you’re considering a personal loan to consolidate debt or finance a major purchase, O1ne Mortgage is here to help. Our team of experts can guide you through the process and find the best loan options to meet your needs. Call us today at 213-732-3074 for any mortgage service needs. Let us help you achieve your financial goals with confidence.