In a pinch, more consumers are turning to personal credit

Like many others, Nik Döner, 33, had to contend with growing credit card debt and interest charges of up to 30 percent.

I went from paycheck to paycheck thinking credit cards were my only option“Said Döner, who is single and lives in Seattle.

Instead, Döner, a video producer and actor, secured a personal loan to pay off his $ 5,000 credit card and open a savings account. He is now paying back 9.6 percent of the three-year loan.

For those with little to no savings like Doner kebab, on rainy days it’s about borrowing money.

And there have obviously been many of them. The number of people who have taken out unsecured loans has increased nearly 30 percent in recent years, from 10.57 million in 2013 to 13.72 million in 2015, according to the latest data from TransUnion.

Another 24 million Americans are expected to take out personal loans this year alone, according to a separate report from Bankrate.

“The personal loan market is hot right now,” said Todd Albery, Bankrate’s personal loan expert.

“It reflects the good economic situation,” explained Jason Laky, Senior Vice President at TransUnion. “Consumers are feeling the benefits of four to five years of solid economic growth and strong employment growth. And then they are ready to borrow again.”

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Personal loans, or unsecured loans, often act as placeholders for those with large upcoming expenses but little savings. They do not require borrowing against anything of value like a home or car, which makes them particularly attractive to those who do not have such equity. However, that usually means that the loans are offered at a slightly higher interest rate than a home equity loan.

Personal loans are also locked for shorter terms such as one to five years, and payments are automatically deducted from a checking account, reducing the chance of missing or defaulting on a payment.

“From a financial responsibility perspective, it feels like a reasonably savvy way to take on debt,” said Albery of Bankrate.

Personal loans work well for smaller amounts of credit than a typical home loan, but more than one would want to run on credit cards – generally up to $ 35,000, Albery said.

Credit card debt is increasing

Before the great recession and After the historic apartment crash, homeowners used their homes to get as much cash as the bank allowed. But borrowers who were burned by falling house prices and today’s tighter lending standards are now significantly more cautious when it comes to home equity loans and lines of credit.

The decline in home equity and housing loans left consumers with the opportunity to noted Laky, Regarding the increase in unsecured personal loans.

In the past few years, a number of online lenders like Lending Club and Prosper have sprung up offering this type of loan as an alternative, especially for Millennials who want to consolidate their debt but don’t have the equity to finance a secured loan to do it.

Meanwhile, the average loan balance on unsecured loans has risen. In 2015, the average balance was $ 7,235, according to TransUnion, up 7 percent from the previous year.

Owners take cash out of houses carefully

The average balance will rise another 5 percent to $ 7,599 in 2016, according to TransUnion’s personal loan forecast.

According to Bankrate, the interest rate for a personal loan averages 11.3 percent, with people with a very good credit rating even reaching 5.5 percent. That is significantly less than the average credit card rate of 15.7 percent.

But despite its current popularity, this type of loan is not for everyone, Albery warned.

People with home equity should consider home equity loans and lines of credit that charge lower interest rates and have a tax break, he said. Those without this type of collateral but with good or excellent credit could qualify for a zero percent credit transfer credit card for up to 21 months, Albery added.

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