Since the COVID-19 pandemic started in March 2020, 24% of Americans have taken out personal loans. Now a survey suggests that the most common use of borrowed money during this period has been for home renovation projects, followed closely by paying off medical bills. This appears to signal a shift in the use of personal loans.
A survey conducted by Ipsos-Forbes in March 2021 asked 1,000 people about how they spent their loans. Home renovation projects (25%) and medical bills (21%) were the two main trends, followed closely by debt consolidation (20%), financing a vehicle (20%), and auto repairs (20%).
Unsurprisingly, putting the funds toward home renovation projects was the main craze among families with children. More than 70% of Americans tackled some kind of home renovation during the pandemic simply because of the lockdown and increased time spent at home.
On the other hand, many part-time workers who were heavily affected by the pandemic used their loans to pay off medical bills and auto repairs, or took car loans to purchase a new vehicle. Even though COVID-relief packages set out in March and December – totaling $1,800 per adult – were helpful, months of unemployment left people looking for additional funds sources.
Surprisingly, the number of personal loans taken and applied for was lower than what researchers had expected. In the survey, 76% of people didn’t apply for or take personal loans, primarily due to lenders tightening their qualification requirements. The average credit score of applicants in 2020 was 643; however, people with credit scores ranging from 600 to 659 experienced a sharp decline in approvals. Overall, there was a 6% decline in the growth of personal loans, and the size of the average loan declined as well.
There was an additional increase in non-revolving debt in 2020, up 3.9%, signaling that people are still relying on various forms of personal loans as a reliable form of financing. However, while there were 3.1 million new personal accounts in 2020, that figure is still lower than 2019. On the other hand, revolving debt in 2020 decreased by more than 10%, signaling that people were paying off their credit card debt.
“While personal loans continue to be a great option for many customers, customers do have other options,” the vice president of personal loans at Discover, Matt Lattman, commented on the topic of fewer people relying solely on personal loans. However, long-term data indicates that personal loans are here to stay, even though spending trends may have shifted.