Personal loans reach record high: time to rethink your spending

Nine years after the financial crisis and it seems Americans have not learnt to curb their spending. In 2008 and 2009, millions suffered from a fall in the stock market and sudden financial uncertainty, whether it was from a drop in their investment portfolio valuation to widespread layoffs and a dearth of job prospects. What was a rude awakening has clearly not been enough to stop the constant-tug of consumerism. Data analyzed by finder.com has found that personal loans are at a record high, reaching $2.69 trillion as of July 2016.

While personal loans did see negative growth over 2008 and 2009, finder.com found that over the past 25 years personal loans have, in fact, grown more than six times faster than the U.S. population. Fast-forward to 2016, low interest rates and more positive sentiment towards the state of the economy are the likely reasons for a bigger debt environment.

After the financial crisis, equity growth in assets like property slowed and lending criteria tightened so it’s not as easy to access funds as it used to be. So people could be turning to personal loans instead.

What is certain is that personal loans are an important part of contemporary America and here to stay. But Americans need to be careful with overusing personal loans and spending more money than you earn can result in unnecessary financial stress down the track.

Personal loans are readily available for most people, however this ease of access comes with interest-laden repayments. The cost of a loan differs depending on your circumstance such as your income and credit rating, and what you want to use the loan for, with some annual rates exceeding 30 percent.

For someone with bad credit, a $5,000 car, for example, could end up costing over $8,500 if they were to pay it off at an annual percentage rate of 20 percent over a period of five years with a $10 monthly fee. Even for someone with an excellent credit score who receives a lower rate of 10 percent, the same car could still cost around $7,000 if paid off over the same time period.

Those wanting to get a loan should be aware of monthly fees which, when combined with interest on repayments, can add up to a significantly higher figure than initially anticipated. So if you are considering a personal loan, it’s important to compare the various loans on offer using tools such as finder.com to work out which one best fits your needs.

Don’t jump into any personal loan without thinking through if you really need that new car or vacation. It might feel like a good idea at the time but could end up costing you much more than it’s really worth.

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