A recent report has suggested that more and more Americans are now turning to personal loans as a financial backup because they do not have any savings that they can turn to in times of financial need. Figures were recently released by TransUnion showing that the number of people with personal loans has grown by 18 percent in the past two years reflecting a sharp rise in popularity.
The figures shown that consumers in America now have around $82.52 billion in unsecured personal loans between them and $165.46 in secured loans. While experts have said that personal loans can prove useful to many people, such as those looking to pay off more expensive debt with a lower rate loan, they can prove to be a debt trap for those who simply take them out. Especially if borrowers obtain them from sources because they have no other financial lifeline to fund emergency costs.
Consumers have to exercise caution
According to officials, although personal loans can prove useful in some circumstances there are many consumers who need to exercise caution when it comes to taking out this type of finance. One expert said that some people were treating being accepted for a personal loan like having a big financial windfall without taking into consideration that they had to repay the loan along with interest.
She added that some people thought that if a personal loan was unsecured it meant that there would be no penalties to worry about if they did fall behind with repayments. However, she said that in some cases these loans had to be personally guaranteed, which meant that the borrower could still be chased for personal assets in the event that they fell behind with the repayments.
She also stated that many personal loans that were not secured came with high rates of interest, resulting in borrowing having to pay through the nose in order to get the finance that they wanted. She said that this could make it increasingly difficult for borrowers to keep up with monthly repayments on the loan and could lead to them becoming burdened with unmanageable debt.
Another expert stated that personal loans could end up being risky if people were using them to cover day to day expenses and were seeing them as a means to funding emergencies. He said that it was vital that people learned to live within their means and tried to save some money so that they had something to fall back on in the event of a financial emergency.