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Personal loans skyrocketing, but they aren’t for everyone

Personal Loan Survey

Twenty-four million Americans are likely to take out a personal loan this year, according to a Bankrate.com survey, including 10 million who are very likely to get the loan and 14 million who are somewhat likely.

“I think the actual number will be even higher,” said Todd Albery, the CEO of Quizzle.com, a Bankrate company. “A lot of people don’t plan for a personal loan until their roof leaks or their car breaks down. Since three in 10 Americans have no emergency savings whatsoever, they’re just one unplanned expense away from needing cash in a hurry.”

Personal loans are unsecured loans that don’t require borrowing against something of value, such as a house or automobile. This makes them attractive to the large number of consumers who don’t have much savings or home/car equity. In addition to financing emergency expenses, personal loans can also be used for home improvements, debt consolidation, and other purposes.

“The personal loans market is hot right now,” said Albery. “New online peer-to-peer lenders as well as traditional banks and credit unions see this as an area with lots of potential. They’re willing to take a little more risk due to the low unemployment rate and the Federal Reserve’s low interest rate policy.”

Bankrate.com, a personal finance website, has found personal loan offers as low as 5.5 percent for people with good credit; the average is 11.3 percent. This is attractive for someone looking to consolidate credit card debt; the average credit card rate is 15.7 percent.

However, personal loans aren’t the best choice for everyone. People with home equity should consider home equity loans and lines of credit, which charge lower rates but require the home as collateral.

On an unsecured basis, Americans with good credit could qualify for a 0 percent balance transfer credit card for as long as 21 months.

Copyright 2016, Rita R. Robison, Consumer Specialist

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