With the help of our research provider, Pureprofile, Finder surveyed 2,076 American adults in February 2020 to see how personal loans are being used in the US.
The results paint a picture of a thriving economy where Americans were investing in their financial wellbeing. Some 114.4 million Americans, or 44.81% of Americans, said they took out a personal loan in the past year.
But this might not be the case for the foreseeable future. COVID-19 brought unprecedented unemployment rates and shook the US economy to its core. It’s likely that in the near future, we’ll see fewer borrowers taking out loans to cover more emergency costs.
The top reason Americans were borrowing in February 2020 was to get out of debt. Some 31.78% of people surveyed who reported ever taking out a personal loan said they used the funds for debt consolidation. Other popular uses involved funding a renovation at 21.31%, and paying for a vacation at 16.39%.
This reflects the fact that Americans were doing relatively well financially before the coronavirus outbreak.
The top two reasons are ways to increase your financial wellbeing and often save borrowers money in the long term. Debt consolidation can help you save on interest by moving high-interest credit card debt to a low-interest loan. And renovations can add value to your home’s value.
But this table will likely look completely different at the end of 2020. Many borrowers won’t have the credit or income to qualify for a low rate on debt consolidation or renovation loans. And most plans to go on vacation, attend a wedding or start a business are likely on hold until life returns to some version of normal.
The average personal loan was $11,657.49. But that varies depending on how borrowers spent the funds.
Loans to start a business clocked in the highest, at an average of $15,820.34 per loan. This was followed by $13,756.05 to fund a renovation, $9,209.35 to consolidate debt and $6,777.13 to pay for a wedding.
These numbers will likely be lower by the end of 2020. How much you can borrow heavily depends on your income and current debts. If you’ve been laid off or had to take a pay cut, you won’t be eligible for as large of a loan.
And while many lenders have allowed borrowers to go into deferment or forbearance, this also means that people aren’t getting out of debt as fast as they would under normal circumstances.
Slightly more men than women took out personal loans in 2020. Some 49.31% of men took out a loan, while only 40.60% of women responded saying they took out a personal loan.
Men also borrowed more than women. Men borrowed an average of $12,391.97, while women borrowed an average of $10,809.37.
This small difference could in part be explained by the gender pay gap. American women make around 81 cents on every dollar men make in 2020, according to The State of the Gender Pay Gap study by PayScale. And as we mentioned before, how much you earn affects how much you’re eligible to borrow.
Generally, older Americans borrowed more than their counterparts — as long as they’re still in the workforce. Some 47.76% of baby boomers took out a personal loan, followed closely by 46.77% of Gen Xers and 46.72% of millennials.
But only 42.68% of the silent generation took out a loan, and Gen Z had the lowest percentage of people who said they took out a personal loan, with only 25.32% borrowing.
This can be explained in part by employment. Most zoomers don’t have the age or experience to be in a job that pays enough to support a personal loan. And the silent generation is well past the age of retirement.
Not only are baby boomers borrowing the most. They’re also taking out the largest loans. The average personal loan for that generation was $13,595.48.
And the few zoomers who took out a loan also borrowed the least. The average loan for Gen Z borrowers was $7,129.96 — just over half of what boomers borrowed.
This could be related to how Americans are using personal loans. Baby boomers and Gen X have had more time to accumulate debt to refinance and more opportunities or to buy homes to renovate.
Many millennials and zoomers just don’t have the credit or assets to qualify for a large loan.
More personal loans went to the South than any other region. Southerners took out a personal loan. The Northeast was the region that saw the fewest loans, with just over 40% of those surveyed taking out a loan.
But this flips when you look at how much people borrow on average. While Northeasterners might be taking out fewer loans, those that do are borrowing more. And while more Southerners are borrowing, they’re also borrowing less on average.
This may be due to income and cost of living. Median household incomes tend to be higher than those in the South and Midwest according to the Census ACS — but so is the cost of living, according to the Consumer Price Index. That could make it both easier and more necessary for residents of the Northeast to qualify for higher loan amounts.
While online lending has become increasingly popular, more people are going to banks than any other type of lender — regardless of gender or location. That is, unless your credit score is too low to qualify.
Close to 60% of Americans with personal loans borrowed from a bank. Credit unions came in second at 29.86% and online lenders came in last at 23.67%.
But the coronavirus might buck this trend. Banks and credit unions have been slow to adopt online applications, which have become essential in a time of social distancing. This could give online lenders an advantage.
Both genders favored traditional lenders like banks and credit unions over online lenders. But more men borrowed from banks and credit unions than women. And more women borrowed from online lenders than men.
This slight difference might have to do with creditworthiness. Traditional lenders still heavily rely on credit score and income, while online lenders often look at alternative data.
Online lenders tend to look at other types of information, like levels of education. This can make it easier to qualify for a loan and potentially compensate for the pay gap.
Overall, banks were the most common place to get a loan, followed by credit unions and online lenders. However, a higher percentage of borrowers from the Northeast took out a bank loan than any other region. And a higher percentage of borrowers from the West took out loans from credit unions and online lenders than any other region.
These statistics might in part reflect trust. The slightly higher popularity of online lenders in the West could be that many are based in West Coast fintech hubs. Familiarity with these types of companies could make borrowers in those areas more willing to trust them.
Even when we accounted for credit score, more Americans borrowed from banks than any other type of lender. The one exception was borrowers with scores that fell in the poor credit range.
More poor-credit borrowers relied on online lenders than banks — but banks were still a popular choice, even for this demographic.
This can be explained by credit requirements. Generally, banks tend to offer the most competitive rates out there, but are harder to qualify with than any other type of lender. If you have good to excellent credit — typically 670 or higher — they can be your best bet.
But once your credit score falls into the fair or poor range, anything under 670, your options are limited. While you may be able to qualify at a credit union, an online lender that looks at data besides your credit might be able to offer a better deal.
Our survey gives a snapshot of how Americans borrowed just before the coronavirus outbreak hit. It’s had a staggering impact on all industries, and lending is no exception.
Fewer Americans are expected to have the credit or income to qualify for a loan in the near future, at least until the economy recovers. Lenders have started tightening requirements. And in some cases, banks like Wells Fargo have been eliminating personal loan programs altogether.
But there may be some silver linings. More banks and credit unions have started to accept online applications. And many are looking into using alternative data to underwrite applications.
This means factors like your level of education, career and other indicators of stability — like how long you’ve had your phone number — can help you qualify for a high rate. It also means credit-busting incidents that are beyond your control — like an illness or divorce — won’t be as damaging to your eligibility for a loan.
Our data is based on an online survey of 2,076 US adults born between 1928 and 2002 commissioned by Finder and conducted by Pureprofile in February 2020, with representative quotas for gender and age. Participants were paid volunteers.
We assume the 2,076 participants in our survey represent the US population of 255.2 million Americans who are at least 18 years old according to the July 2019 US Census Bureau population estimate. This assumption was made at the 95% confidence level with a 2.15% margin of error.
The survey asked people whether they have taken out a personal loan, the total amount of personal loans they have taken out for different categories, and where they got their personal loan from. Personal loan categories were Fund a renovation, Cover medical expenses, Start a business, Legal fees, Cover medical expenses, Pay for a vacation, Fund a move, Pay for a funeral, Consolidate debt, Pay for gifts, Pay for a wedding, Attend a wedding, Bail money, and Other.
Average calculations of personal loans ever taken were based on only the participants who reported taking a personal loan in a category — for example, to calculate the average amount of personal loans taken for consolidating debt, the 55.19% who indicated that they have not ever taken out a personal loan, and the 30.82% who responded “0” (meaning they have taken a personal loan for another reason listed, but have not taken a personal loan for consolidating debt) were not included. Our calculations were weighted for age and gender.
To avoid skewing the data, we did not include extreme outliers in our calculations
We define generations by birth year according to the Pew Research Center’s generational guidelines:
Gen Z — 1997–2002
Millennials — 1981–1996
Gen X — 1965–1980
Baby boomers — 1946–1964
Silent generation — 1928–1945
We define geographical regions as defined by the Census Bureau.
25.9% of adults take out a personal loan for their home renovations
On an average:
Interest rate: 10.57%
Term: 24 months
$2,990 principal borrowed
$312.72 in total interest accumulated
28.6% of adults take out a personal loan for their wedding
On an average:
Interest rate: 10.57%
Term: 24 months
$3,082.00 principal borrowed
$302.97 in total interest accumulated
47.10% of adults take out a personal loan to finance their small business
On an average:
Interest rate: 10.57%
Term: 24 months
$7,176.00 principal borrowed
$750.53 in total interest accumulated
10.57% of adults take out a personal loan for vacationing
On an average:
Interest rate: 10.57%
Term: 24 months
$1,159.00 principal borrowed
$1280.22 in total interest accumulated
24.50% of adults take out a personal loan for medical emergencies
On an average:
Interest rate: 10.57%
Term: 24 months
$958.00 principal borrowed
$199.20 in total interest accumulated
Allan Givens
Public Relations Manager
203-818-2928
allan.givens@finder.com
Nicole Gallina
Communications Coordinator
347-677-4931
nicole.gallina@finder.com
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If you’ve made a year of on-time repayments and have good credit and income, you might qualify.
I need a personal loan for my vacations and for my tuition fees. Please help me.
Hi John,
Thanks for getting in touch with Finder. I hope all is well with you. 😃
You may apply for a personal loan if you are in US.
On that page, you will see a table that allows you to conveniently compare your personal loans based on the required minimum credit score, APR, and maximum loan amount. Once you found the right one for you, click on the “Go to site” green button to learn more or initiate your application.
If you are outside of the US, it would be a good idea to check your local area. Shop around until you find the right lender.
Please make sure that you’ve read the relevant T&Cs or PDS of the loan products before making a decision. Moreover, check the eligibility requirements as well and consider whether the product is right for you.
I hope this helps. Should you have further questions, please don’t hesitate to reach out again.
Have a wonderful day!
Cheers,
Joshua