This Is the Average Consumer’s Personal Loan Balance. How Does Yours Compare?

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Personal loans can be a convenient borrowing option, but you don’t want to get in over your head. Read on to learn more. 

There’s a reason consumers are commonly drawn to personal loans. For one thing, these loans tend to come with competitive interest rates. You might lock in a much lower interest rate on a personal loan than you’ll get by charging expenses on a credit card.

And in the latter case, your card’s interest rate has the potential to climb while you’re in the process of paying off your balance. Personal loans come with fixed interest rates, so your monthly payments are nice and predictable.

Also, personal loans allow you to borrow money and use your proceeds for any purpose, whether it’s renovating a house or starting a business venture. When you take out a mortgage loan, for example, you can only use the proceeds to purchase a home.

Recent data from TransUnion reveals that total U.S. personal loan balances reached $225 billion during the first quarter of 2023. And the average personal loan balance per borrower was $11,281.

If you’re in the process of shopping around for a personal loan, you may be looking at borrowing a similar sum. But before you sign your loan, make absolutely sure you can afford those monthly payments.

Don’t get in over your head

Because personal loans are flexible and commonly touted as affordable, it’s easy to go overboard when taking one out. If you have great credit, you might qualify for a fairly large personal loan. But qualifying for a loan doesn’t automatically mean you can afford the payments that come with that loan. And you don’t want to end up in a situation where you fall behind on your payments and your credit score takes a massive hit.

As such, before signing a personal loan, do these two things:

Figure out what you’re borrowing for and do your best to accurately estimate the cost.Figure out what monthly loan payment actually works for your budget.

Let’s say you’re borrowing money to renovate your house, and you have a few different projects you want to tackle. Rather than randomly apply for a $15,000 loan because you think that’ll cover everything you need to do, get estimates or do research to see what your projects will actually cost. If the total only comes to $12,000, borrow that — not $15,000.

What’s more, look at your essential bills, compare them to your paycheck, and see how much room you have left over for personal loan payments. If you can only swing a monthly payment of $300, don’t take out a loan that will have you paying $400 every month.

Will personal loan balances keep climbing?

At the end of 2022, total personal loan balances amounted to $192 billion, and they’re now at $225 billion. That represents a year-over-year growth of 26.3%. As such, it’s fair to assume that consumers will continue to turn to personal loans to meet their financial needs. But you should still be very careful when taking out one of these loans of your own.

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