Personal Loans Make a Comeback: What You Need to Know Before Borrowing
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Here's your money briefing for Tuesday, May 3rd. I'm JR Whelan for The Wall Street Journal. If it seems like you've been getting a lot more junk mail lately offering you a loan, you aren't imagining it. After taking a pause during the pandemic, banks are back to offering lots of personal loans. So are these offers worth a look?
Personal loans do have set end payment dates. So unlike credit card debt, you know, people can find personal loans a lot more manageable because there's a fixed payment that's required every single month.
Coming up, our banking reporter, Anna Maria Andriotis, will be here to talk about the resurgence of personal loans and the pitfalls that borrowers need to watch out for. That's after the break.
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banks are offering more personal loans to consumers. The credit reporting firm Experian says that lenders originated $222 billion of personal loans last year, up 22% from just before the pandemic, and the most since at least 2011. So what do you need to know about personal loans before deciding to take one out? To talk about that, I'm joined now by WSJ banking reporter, Anna Maria Andriotis. Anna Maria, thanks so much for being with us.
Great to be speaking with you.
So Anna Maria, just to get us started, there are a lot of different kinds of loans out there. What do people typically take out personal loans for?
Personal loans are taken out for a variety of reasons.
Why are personal loan offers showing up in more mail and ads now?
They include consolidating credit card debt, basically moving existing credit card balances into one loan with a fixed payment and a fixed end date. But they also include a variety of purchases and expenses, things like paying for home renovations, paying for vacation, Really, personal loans can be used for almost anything. They are meant to essentially finance expenses that people either don't have the money on hand to pay for those purchases in full right now, or people who just basically want to spread out their payments over time rather than putting up front cash. In many cases, lenders don't even ask or don't require writing on the application form what the person is using the personal loan for.
But essentially what happens is when the consumer is approved and they take on the loan, the lender will deposit the entire loan amount into the consumer's bank account and they will have a monthly payment to make to that lender for a set number of months until the loan is paid off.
Now, does the consumer have to put anything up to get a personal loan like you do with some other kinds of loans?
In most cases, it's an unsecured loan. So unlike a car loan that's tied to the car, and if the consumer doesn't pay their car loan, their car will get repossessed. Also, same with a mortgage, the asset's tied to the house. So if the If a consumer doesn't pay their mortgage, they will likely lose their house. With a personal loan, there isn't an asset in most cases that serves as collateral for the loan. So for that reason, it can be very appealing to consumers to sign up for one of these loans.
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