Inflation spikes after Iran war begins: March CPI report
In the midst of the Iran war, consumer prices skyrocketed in March due to soaring gasoline prices and fluctuations in food prices.
American consumers are racking up personal loans.
The term “personal loan” includes a variety of products. However, they are typically installment loans with fixed interest rates and monthly payments over one to several years. Current interest rates range from approximately 6% to over 36%.
You can get a personal loan from major banks, online lenders, and credit unions. Americans use them to repair roofs, buy hot tubs, finance vacations, and pay for school fees. And they are becoming more popular every year.
According to a February report from credit bureau Experian, the percentage of consumers with personal loans rose from 31% in 2017 to 38% in 2025. The average loan balance in 2025 was $19,333.
Why are personal loans rapidly increasing? One reason, lending experts say, is that Americans are grappling with unrelenting inflation and struggling to pay for everything from home repairs to summer vacations.
“Simply put, the cost of living is getting more expensive and people are looking for new ways to finance themselves,” said Matt Schultz, chief consumer finance analyst at LendingTree.
Obtaining a personal loan has also never been easier.
“I think personal loans are more available and popular than ever before,” said Stephen Cates, a financial analyst at Bankrate.
The personal loan industry “has a bad reputation” because it has historically been tied to check-cashing shops and payday loans, Cates said.
“I think their reputation is improving with more transparency, more regulation and oversight,” Cates said. Bankrate, LendingTree, and NerdWallet all have curated lists of recommended personal loans.
Here are 7 reasons why Americans take out consumer loans
According to a January survey by Experian, the top seven reasons American consumers said they might take out a personal loan are:
- Major purchases, 42%
- Emergency expenses, 35%
- Debt consolidation, 33%
- Home improvement, 33%
- Vacation, 21%
- Medical expenses 20%
- Education, 17%
The big drawback of personal loans is the interest rate. As of April 8, the average interest rate on personal loans was 12%, according to Bankrate.
That’s why personal loans are generally cheaper than credit cards, which have an average interest rate of 19.6%, Bankrate says. However, home equity loans (about 8%) or home equity lines of credit (about 7%) usually have lower interest rates.
However, for borrowers with low credit scores, interest rates on personal loans can be much higher than 30%.
“You have to know what you’re getting into,” Schultz says. “You need to have a repayment plan, and you need to know how much you can afford.”
4 reasons why you should consider a personal loan
With these caveats in mind, here are four reasons why you should consider a personal loan.
To prepare for sudden expenses
NerdWallet loan expert Kate Wood took out her first personal loan to repair a leaking roof.
“I needed money quickly,” she said.
She could have taken out a home equity loan. But again, she needed money quickly.
Bankrate estimates that home equity loans typically require a daunting amount of paperwork and a significant amount of time, ranging from two to six weeks.
In contrast, personal loans are often available within a week, according to NerdWallet.
How to pay by credit card
Personal loans are popular for debt consolidation. This calculation is especially appealing in the case of credit card debt.
Consumers who have balances on two or three cards and are paying interest rates of 20% or higher may be able to transfer all their debt to a personal loan with a lower interest rate.
If you can get one, a lower rate will save you money over time. One payment is easier than two or three payments. Plus, you have the added security of an installment loan with predictable payments and a decreasing balance.
In contrast, one of the dangers of credit cards is the temptation to keep using them.
“Many people are starting to look at personal loans as a way to deal with debt consolidation,” Wood said. But the success of that approach “depends largely on whether you change your behavior.”
However, keep in mind that a personal loan may not be the best deal. A better option, if possible, is to take out debt on a credit card with zero APR. This promotional rate allows consumers to pay interest on balance transfers for 12, 18, or even 24 months.
“Obviously, a zero percent balance transfer card is the best option because you can’t go above zero percent,” Schultz said.
For home improvement projects
Let’s say you want to landscape your garden or refinish your floors. Home equity loans are also available, but these transactions typically require weeks of paperwork and are expensive.
Financing experts say personal loans may be a better option for single-family home projects. Contractors may also offer to finance your project.
“It’s a personal loan,” Wood said.
If it is your only credit option
Cates said personal loans are “just one option” among many for consumers with good credit scores.
But for Americans with poor credit, a personal loan may be the only option.
Personal loans are “an accessible credit option for people who can’t get credit elsewhere,” Cates said.
According to Experian, you typically need a credit score of at least 680 to qualify for a home equity loan. And of course, you need a home too.
You can get a credit card even if you have bad credit, but the interest rates may be higher and the credit limit may be lower.
If you have bad credit, a personal loan can be your lifeline, even if it’s expensive. According to LendingTree, the average interest rate for borrowers with credit scores in the low 600s or lower hovers around 30%.
“There will be situations where people say, ‘I have an emergency and I don’t have money, I need to pay this medical bill, or I want my brakes fixed,'” Cates said.
“These products provide a service,” he said. “They’re there for a reason.”
