People need loans from time to time! The reasons are diverse. Sometimes, it is to address their personal requirements. And on other times, they need to clear business payments and the like. And one of the most accessible loans to acquire today is a personal loan. Until a person has an extremely poor credit score and history, banks usually don’t deny personal loans. When a person is unable to pay the amount, it results in consumer debt. Today, personal loans are a channel that results in increased consumer debt. Based on the TransUnion data, the outstanding personal loans today are close to $120 billion. The other dents have a slower pace than the overall consumer debt. Understanding a personal loan Simply put, a personal loan can get classified as an unsecured loan which usually ranges between $1,000 and $1,00,000. It has a variable or fixed interest rate. You can use a personal loan for making a huge purchase. Alternatively, you can also use it to consolidate debt. That is not all! The borrowers also have the chance to make use of personal loans for consolidating their credit card debts. Other purposes of personal loans are to make payments for medical bills, home improvements, as well as other crucial expenses. Reasons for the increase in consumer debt It is essential to know the reasons that resulted in the growth of consumer debt. The principal reasons are as follows: 1. The presence of online traders The growth of fintech ventures, as well as corresponding venture funding, has resulted in the explosion of the personal loan lending. Today, most people are ready to source their loans from online lenders than a bank. Also, online lenders have increased this growth record. It accounts for about 36% of the overall personal loans. Online lenders also provide favorable interest rates and don’t have strict criteria for credit scores. Moreover, procuring loans from online lenders is easy and fast. It helps to address the emergency requirements. 2. Technology There’s nothing new about a personal loan! Banks have been providing personal loans as a financial product for years now. However, today, new-age technology has added more ease to the individual loan transactions. It is more accessible than a decade back. If you want to apply for a loan, you simply need to fill up a form online and wait to get the fund you need, within one day or less than that. 3. Availability Much before the fintech growth, the access and availability of the personal loans got arguably more restricted to the banks. There were also a few high yield lenders who provided the same. Today, the expansion of online lenders has helped in making personal loans more available and acceptable. Also, today the competition has increased manifold. As a result, there is more transparency in the marketplace that has benefited the customers. Personal loans and credit card consolidation Are you faced with credit card debt? If yes, you can opt-in for a personal loan to manage it. Do you want to consolidate credit card debt? If yes, you can blend the existing credit card debt to a single and new personal loan, at a very low-interest rate. Today, most credit cards have APRs, which is an annual percentage yield that ranges between 10% and 20%. Do you have a current credit card debt? If yes, then you can have access to a personal loan with a reduced interest rate, instead of your present credit card interest rate. For instance, if your credit card debt is at $10,000 and 15% interest, you have a chance to get a personal loan with a 7% interest rate. It all depends on your credit profile and various other factors. However, you have the opportunity to reduce your interest payments over 50% potentially. It can help you from saving significant interest costs and assist you to pay all the credit card debt faster. Personal loans and its risks It is essential to look at it from a macro perspective. If you have a debt category named as the “fastest-growing,” you know that there is a concern for potential default by the customers. A vast scale default by the borrowers is not a favorable economic environment. It can lead to various concerns. But as compared to the mortgages, the personal loan balances are lesser. The average debt for most borrowers of an unsecured is approximately $7,986. Additionally, the average outstanding personal loan balances also represent almost 10% of the outstanding mortgage balances. Additionally, the loan performance stays strong as well. TransUnion, a credit bureau reveals that the default rate for most personal loans is close to 3.5%. The consumer angle Now let’s have a look at the customer side! Akin to most customer debt, when you borrow a certain amount, you need to ensure you pay that back. It might sound very apparent, but you should always know the reason behind acquiring a personal loan. Also, ensure that there is a good plan for your debt repayment. And you should have the ideas clear. For instance, if your logic is credit card consolidation, then your loan with a reduced interest rate is the best move. If you have outstanding debt, it’s a wise decision. And this single strategy is to deduct the interest rate. There are times people borrow the personal loan amount as a brand new debt obligation. They use it for making home renovations, pay for a vacation, and the like. Here it is essential to ensure that they have a clear understanding of the loan terms. You should also be sure that you can repay the loan amount within the mentioned time. The moment you understand these reasons, it will become simple for you to address your debt and personal finance management. Conclusion These are some of how personal loans are resulting in growing customer debt. The easy availability is one of the popular reasons. However, once you understand the reasons you can make personal loans work in your favor and not let it become a debt. Also, it is essential to manage your expenses and savings in a way, that you can repay your entire debt and loan amount timely, in a hassle-free way.