Personal Loan Debt Growth and New Debt Schemes: Updated Data 2021
The previous year has brought new challenges to the whole world with the pandemic being a new reality. Americans have also suffered from the COVID-19 while the economic crisis has already become a harsh present instead of a blurry future. There has been a significant downfall in many countries with unforeseen results that led to numerous layoffs and larger unemployment.
Thousands of consumers have been living paycheck to paycheck since the pandemic of 2020 and it has affected their borrowing habits as well. While not many people used to have decent savings to remain financially afloat during monetary disruptions, the new COVID-19 reality has turned the world upside down and resulted in personal loan debt growth. Plenty of employees have been laid off or their working hours have been cut. As a result, here is how the situation looks like at the moment and what borrowing decisions consumers make in 2021 to survive and make ends meet.
The New Economic Reality
Before the present pandemic, the previous huge financial shortfall in the economy was in 2008 when there was unemployment and people used to take out more debt to pay for their needs. Small personal loans have always been a decent lending option for the times when you are strapped for funds and need extra financial assistance. You can learn how do registration loans work and what small personal loans can be used for if you are also experiencing a downfall with personal finances and don’t have an emergency fund to tap cash from.
Nowadays, as COVID-10 continues to spread around the world and there is no light at the end of the tunnel yet, we have to embrace this situation and try to adapt to it in order to stay afloat. Nobody could predict how personal loan debt will change in 2020-2021 and the whole situation was rather unstable. The virus has not only affected the health and peace of mind of millions of people, but it has also affected the economy in the USA and all around the globe. Federal Reserve has released a report stating that American consumer debt had hit its record of $4.2 trillion in 2020 but has after that fallen drastically during the pandemic, which threatens the economic recovery. You can also find a lot of information about low interest loans for hearing aids on the Internet or other available resources.
Growth of Personal Loan Debt
There has been quite a lot of economic pressure since the beginning of 2020 and this pressure hasn’t vanished and still continues to be now that we are in 2021. It was highly expected that consumer loan debt would increase as people faced unemployment and struggled to maintain financial health. However, the reality is slightly different. Personal loan debt has been growing over the last several years but it decreased from 12% to 6% in 2020, according to Experian.
The only consumer category that increased their borrowing decisions was Generation Z which is the youngest category in the poll. The balance on their personal loan debt grew by 33% last year. Experian is one of the top credit reporting agencies that has analyzed data on personal loan usage among American consumers to see the changes in borrowing habits of people today. It is necessary to spot the changes and see the real picture of how the pandemic has impacted consumers.
The survey shows that personal loan debt continues to grow. More and more people opt for various lending solutions to help them cover unpredicted expenses and support their families during the recession. What is more, mortgage and student loan balances have increased even more in 2020, growing by 7% and 24%, respectively. As we can see, the overall personal loan debt grew to $323 billion in the third quarter of 2020. Borrowers owe about $16,458 in small personal loans compared to $16,259 in 2019.
Present Situation and New Schemes
People are taking out personal loans for a variety of reasons. They may request this lending option for:
- Paying rent;
- Covering utility costs;
- Paying down bills;
- Medical costs;
- Buying groceries.
Thousands of small businesses had to stop working while a number of enterprises began performing their services online. Gyms, cafes, restaurants, venue areas, and movie theaters had to close because of public health concerns. It led to further issues with salary payments, bill payments, rent, etc. Financial experts have predicted the rapid growth of personal loan debt although this situation hasn’t changed dramatically. It may be due to the fact that socially vulnerable consumers and those who were laid off had to face money problems and cut their spending. People can’t afford to take new debt as they understand they have no means to pay it off.
Some fintech companies have come up with a new scheme called “Buy-Now-Pay-Later” (BNPL) which allows small businesses to remain afloat and also allows consumers to purchase necessary things. This scheme is suitable for consumers without savings but with regular income. It means you purchase something straight away but stretch the payment for a couple of weeks. Some companies offer an extension period of 15 to 30 days which is rather convenient. On the other hand, if you forget about the due date or fail to pay the debt off on time, you will face extra charges and interest.
In conclusion, nobody can say when the whole pandemic situation will vanish. The current financial crisis has had serious effects on the world economy and the ability of regular consumers to pay their bills and support their needs. It’s obvious that the spending abilities of people in the USA have lowered while more people are taking out personal loans to pay the bills. Experts suggest consumers minimize their expenses and use their savings for financing temporary needs. While personal loans are suitable for short-term issues they should be taken out responsibly and only when you are sure you will be able to return the debt. Lending options can help a lot for the challenging times when you don’t have a cash cushion to lead a normal life and support your needs.