Personal loans have surged in popularity over the last decade, but how happy are borrowers with their experience?
We have some good news.
According to our 2020 Personal Loans Survey, 89% of borrowers were “satisfied” with at least one aspect of their personal loan, while majorities were “very satisfied” with every aspect we tested. Further, nearly 1 in 4 American adults have taken out a personal loan in the last 10 years.
We reached out to Lauren Anastasio — a certified financial planner (CFP®) at SoFi — for her take on our survey results. “I’ve found most consumers use [personal loans] to consolidate other high-interest rate debts, like credit cards,” she said. That tracks with our survey, where the most common reasons for taking out a personal loan were debt consolidation, home improvement and emergency expenses.
Also, nearly 1 in 3 people who take out personal loans have a credit score under 670, according to the survey, which is considered a “good” to “fair” FICO score, with some borrowers reporting scores as low as 580.
“Personal loans often help boost a borrower’s credit score,” Anastasio said. “A significant component to a consumer’s credit score is their credit utilization, or the percentage of their credit lines that is actively being used on revolving debt. By consolidating revolving credit card debt onto an installment loan like a personal loan, consumers see a very large drop in their utilization rate and therefore a potentially large increase in their credit score once they have consolidated.”
According to data from the credit bureau Experian, borrowers who use their personal loans for debt consolidation do indeed often see a higher credit score, assuming they don’t miss any payments. “The boost to a borrower’s credit score is the icing on the cake,” Anastasio said. “While not every borrower will have the same experience, those who use personal loans to consolidate other high-interest debt benefit from lower interest costs, more consistent and predictable payments, and often a higher credit score to boot.”