Consumers are increasingly turning to unsecured personal loans to achieve their financial goals, whether they want to knock out home improvement projects, consolidate high-interest credit card debt or simply pay for an unexpected car repair.
Personal loan balances have ballooned — both at the individual borrower level as well as nationally — at a time when interest rates have also risen rapidly. Simply put, personal loans are getting larger and more expensive to repay. Meanwhile, more borrowers are becoming delinquent on their personal loan debt.
Learn more about the personal loan trends from 2023 and how that will impact borrowers into 2024, according to a U.S. News analysis of industry data from TransUnion, Experian, the Federal Reserve and the National Credit Union Administration.
[Read: Best Personal Loans.]
Personal Loan Debt in America is $241B, a Record High
Personal loans continue to be one of the fastest-growing financial products in the industry, a trend that was catalyzed as cash-strapped Americans contended with double-digit inflation over the past few years. Total outstanding personal loan debt has increased 54% since the onset of the COVID-19 pandemic, from $157 billion in the fourth quarter of 2019 to $241 billion today, TransUnion data shows. Let’s put that in perspective: During that same timeframe, credit card balances grew by 16%, per the Federal Reserve Bank of New York.
That’s saying something, since outstanding credit card debt is already shattering record highs, surpassing the $1 trillion mark in the second quarter of 2023.
“Inflation has abated to a large extent in recent months, but its elevated levels in 2021-2022 have left overall prices sharply higher across a wide range of products and services — not just discretionary spend categories, but everyday items that consumers rely on. As a result, consumers have increasingly turned to their existing available credit lines.”
It’s not a coincidence that rising credit card balances are coupled with growing personal loan debt. Personal loans are commonly used to consolidate credit card debt
at a lower, fixed interest rate, which can be a legitimate way to save money and pay off debt faster as long as you don’t rack up your credit card balances while you repay the debt consolidation loan.
But a recent TransUnion survey found that consumers who opened a personal loan for debt consolidation ended up doing just that. Within 18 months post-consolidation, their credit card balances rebounded close to pre-consolidation levels. In other words, this group of consumers hoping to conquer their credit card debt went back to square one — only this time they might have an additional monthly payment to juggle in the form of their debt consolidation loan. The cycle of borrowing continues.
23M Americans Have Personal Loans, Owing Nearly $12K on Average
Despite the fact that personal loan debt in America has ballooned over the past few years, the total number of loans and originations hasn’t been increasing at such a breakneck pace. As of the third quarter of 2023, 23.2 million Americans have a personal loan — up slightly from 22 million a year ago. Personal loan originations also slowed pace in 2023 after reaching record levels in 2022.
There are a few reasons why debt balances are increasing quicker than originations. Those who borrow personal loans are taking on larger loans, thanks in part to increased demand from higher-credit borrowers, and some consumers are repaying multiple loans at the same time. The total number of personal loans is 27.8 million, spread among the 23.2 million consumers who have at least one loan. The average debt per borrower rose from below $9,000 at the start of the pandemic to $11,692 currently. “Although originations continue to fall from 2022’s record levels, total unsecured loan balances and consumer-level balances still reached records, driven primarily by super prime consumers, representing a continued shift by lenders towards less risky borrowers,” says Liz Pagel, senior vice president of consumer lending at TransUnion, in a statement.
Creditworthy borrowers are more likely to be approved for higher loan amounts and longer repayment terms — and more importantly, lower interest rates. On the other hand, those with fair or bad credit will qualify for less favorable terms on a personal loan, making them more expensive to repay due to higher perceived risk from the bank.
Personal Loan Terms by Credit Score
| Credit Tier (Score) | Loan Length | Loan Amount | Annual Percentage Rate (APR) |
| Subprime (300-600) | 16 months | $2,100 | — |
| Near Prime (601-660) | 29 months | $4,900 | 23.7% |
| Prime (661-720) | 46 months | $10,700 | 16.3% |
| Prime Plus (721-780) | 57 months | $16,900 | 12.7% |
| Super Prime (781+) | 68 months | $19,000 | 10.3% |
| Source: TransUnion. Data is for loans originated in Q2 2023. APR for subprime borrowers is not shown due to volatility. |
Personal Loan Rates Rebound Higher to 12.17%
Personal loans aren’t just getting larger, they’re also getting more expensive to repay thanks to rising interest rates. Personal loan rates vary widely based on an applicant’s creditworthiness, but they’re also influenced by greater economic conditions like the Federal Reserve’s monetary policy. The average rate on a two-year personal loan reached a record low of 8.73% in the second quarter of 2022, climbing to 12.17% by the third quarter of 2023, according to data from the Fed. Meanwhile, the central bank raised its benchmark rate 11 times since March 2022. Personal loan interest rates are likely to stay elevated for the time being, but relief is on the horizon. Inflation, employment and wage gains have slowed meaningfully over the past several quarters, which is good news for Fed officials who have been tasked with bringing consumer price growth back to the 2% annual target.
The central bank held rates steady in its December meeting, signaling that the current cycle of rate hikes may have come to an end. In its latest projections materials, the Fed expects rate cuts will be necessary in 2024, which will eventually put downward pressure on personal loan rates.
[Estimate: Your Monthly Payments with Our Personal Loan Calculator]
Delinquencies Spike to 3.75% From Pandemic-Era Lows
Personal loan delinquencies fell to historic lows in late 2020 and early 2021 as many consumers hunkered down during pandemic stay-at-home orders. Without the temptation to spend money on travel or restaurants — and perhaps with the help of government stimulus checks and the student loan payment pause — Americans were able to pay down debt in the early days of COVID-19. Just 2.28% of personal loan accounts were 60 or more days past due in the second quarter of 2021.
However, as life seemed to return to the new “normal,” personal loan delinquencies also rebounded to their pre-pandemic levels. By the fourth quarter of 2022, the personal loan delinquency rate rose to 4.14%. It’s pulled back marginally to 3.75%, which is pretty average from a historical standpoint. On a positive note, delinquencies have declined in recent quarters led by an “improvement in the performance of originations by below prime borrowers,” Pagel says. Meanwhile, delinquencies continue to be elevated for super prime borrowers with credit scores above 780. Translation: Personal loan borrowers with fair credit are pulling their weight, while those with excellent credit lag behind.
“This is something worth watching in the months to come as we look for potential impacts of the restarting of student loan payments for millions of borrowers,” says Pagel.
Gen Z, Millennials Lead Personal Loan Growth
Personal loans are trending among Gen Zers, according to a study from Experian. Between 2021 and 2022, personal loan balances among Gen Z borrowers increased by 15.4%, the fastest pace of any generation. Growing debt balances among young adults is to be expected, simply reflecting the natural progression that happens when a generation ages into the consumer credit market. Zooming out, however, Zoomers still have the lowest average debt burden at $7,684.
At any rate, personal loan debt increased across all generations during that timeframe. Millennials (many of whom are now entering their 40s) saw a 12.5% increase in personal loan balances. Baby boomers hold the highest average debt balances, at $21,644.
Average Personal Loan Balance by Generation
| Generation (Age) | Q3 2021 | Q3 2022 | Annual Change |
| Gen Z (18-25) | $6,658 | $7,684 | +15.4% |
| Millennials (26-41) | $13,418 | $15,101 | +12.5% |
| Gen X (42-57) | $18,922 | $20,677 | +9.3% |
| Baby boomers (58-76) | $20,370 | $21,644 | +6.3% |
| Silent Generation (77+) | $17,334 | $18,211 | +5.1% |
Personal Loan Debt Rises in All 50 States
The trends we’ve covered in the personal loans space this year may seem disheartening. Americans are increasingly relying on personal loans to consolidate the credit card balances they’ve become reliant on. Personal loans have gotten more expensive thanks to rising interest rates, which is unlucky timing for Gen Z borrowers who are aging into the consumer credit market. On top of everything, borrowers are becoming delinquent at higher rates in recent quarters.
So on a lighter note, click through the map below to see the average personal loan balance in your state. Because everyone loves an interactive map, right? Borrowers in the Pacific Northwest, like Washington ($30,648) and Oregon ($29,247), carry the highest personal loan debt. Another region particularly burdened by personal loan debt is the Great Plains — home to North Dakota ($27,856), Wyoming ($27,428) and Montana ($26,934).
Interestingly enough, consumers living in high cost-of-living areas on the East Coast, including the District of Columbia ($12,250) and New York ($14,890), have some of the lowest personal loan balances. Borrowers in pricey Hawaii have relatively low balances, but have seen their average debt balances increase at the highest annual rate (20.1%).
It’s difficult to make any meaningful extrapolations from this state-level data, but that didn’t stop me from learning that the average personal loan balance in my home state of Virginia is $16,765. If nothing else, it’s a somewhat irrelevant statistic that I can use as an icebreaker — or maybe a conversation ender, depending on the crowd.
[Read: Best Debt Consolidation Loans.]
What Personal Loan Borrowers Can Expect in 2024
Personal Loan Rates Have Risen — But Other Interest Rates Have, Too
While it’s true that interest rates on personal loans have risen over the past year or so, rates have also increased across a number of consumer lending products, from mortgages to student loans. Credit cards are no exception; the average credit card interest rate
at commercial banks is 21.19%, according to the Fed — and it’s even higher at 22.77% for accounts that assessed interest.
Prospective borrowers who plan to consolidate credit card debt will most likely be rewarded with lower financing costs, with the two-year personal loan rate now at 12.17%. The added benefit of consolidating debt into a personal loan is that rates and monthly payments are fixed, not variable.
Of course, borrowers who are considering credit card consolidation should weigh their other options, as well. Those with excellent credit might qualify for a balance transfer credit card with an introductory 0% APR period, and the interest savings can typically outweigh the balance transfer fee. It’s also possible to consolidate credit card balances into a secured loan like a home equity loan, but moving unsecured credit card debt into a secured debt means you’ll risk losing the asset you used as collateral if you can’t make payments.
The bottom line: Interest rates have risen across the board, so borrow money and tap your credit lines wisely.
Credit Unions Will Continue to Be a Great Resource
In the year ahead, consumers will need to borrow strategically to get competitive pricing on personal loans. Credit unions are a valuable resource for personal loan borrowers, particularly those with a less-established credit history. Unlike for-profit banks and lenders, credit unions
are non-profit and member-owned, meaning they offer some of the lowest rates available on consumer lending products — including unsecured personal loans.
But perspective is everything: While credit unions tend to have lower rates on personal loans, rates are still on the rise. The typical annual percentage rate on a 36-month credit union loan rose from 8.77% at the start of 2022 to 10.58% this past quarter, according to the National Credit Union Administration. Meanwhile, the rate on a three-year personal loan from a bank rose from 9.85% to 11.23% in that same time frame.
It pays to shop around when interest rates are high. Most (but not all) personal loan lenders let you get prequalified with a soft credit inquiry. This allows you to compare rates across multiple online lenders, commercial banks and credit unions without impacting your credit score. If you’re set on getting a personal loan in 2024, get a few rate quotes before you formally apply through the lender.
Buy Now, Pay Later May Offer More Favorable Terms
By now, you’ve probably heard of buy now, pay later (BNPL) companies like Affirm and Afterpay that allow you to split large purchases into smaller installments over time. In some cases, these are essentially a small-dollar personal loan that you repay in weeks, not years. About one in five (19%) of Americans have used BNPL in the past year, according to the New York Fed.
While many BNPL providers offer zero-interest financing, that’s not the case across the board; some borrowers could see rates as high as 30% while using BNPL. Plus, you’ll want to watch out for late fees and other hidden financing charges.
Still, BNPL can be a worthwhile alternative to borrowing a personal loan if you need to make a large purchase, such as furniture or an appliance. Buy now, pay later typically doesn’t require a hard credit inquiry, and you can use it to borrow exactly as much as you need to cover your expense. Just be sure to read the terms carefully and borrow wisely: Many shoppers use BNPL to purchase items they couldn’t otherwise afford, according to a 2023 U.S. News survey. You don’t want to end up among the 19% of consumers who regret using buy now, pay later.
More from U.S. News
5 Costly Debt Consolidation Mistakes — and How to Avoid Them
Survey: Debt Consolidation Pays Off for 69% of Borrowers
Many Turn to Loans in Wake of Inflation-Era Prices — Here’s Why You Should Avoid That
Personal Loan Statistics and Trends to Watch in 2024 originally appeared on usnews.com
