The epidemic is on the rise for more money, and a new survey shows Americans are turning to private loans for a number of reasons – from repairing cars to paying medical bills.
A March study by Ipsos for Forbes Adviser asked if Americans had taken out private loans during the pandemic (from early 2020 until now) and how they used the money. About 25% of respondents who claimed to have taken out private loans indicated that they were using the money for housing improvement projects, which was the most common goal.
The study also found that people with children in the home are more likely to say that they have used a home loan than to live without a child. This could increase the demand for home improvement projects during the epidemic.
Meanwhile, part-time workers were more likely to take out loans to cover medical bills, car repairs, vehicle financing, transportation costs, or tuition than those who did not work full-time or retired.
It uses 5 most common private loans during the epidemic
At the time of the outbreak, only 24% of Americans took out private loans, but the reasons given may indicate how the use of private loans changed during VV-19.
About a quarter of all respondents who took out private loans said they used the money for home improvement, the highest response in our study. Other common uses include medical bills (21%), debt consolidation, (20%), vehicle (20%) finance, and car maintenance (20%).
The five main reasons why people take out loans are obvious. However, since most respondents said they did not take out a private loan last year, there is no statistical significance, for example, between the percentage of people who took out a home improvement loan and the amount taken out for debt consolidation.
1. Home improvement
The home improvement industry has seen significant activity throughout the epidemic. Studies show that 70% of Americans underwent home improvement projects during the epidemic. Moreover, according to consumer specialists, Americans are taking home improvement projects simply because they have more time and spend it at home.
Home improvement loans are usually unsecured loans — this means they do not need any guarantees — the total amount of money that borrowers repay through one monthly payment.
People can use mortgage loans and mortgages to help finance these projects, but you must have an equitable homeowner in your home – when the current market value of the home reduces the mortgage balance. As a result, they are not widely available as private loans.
Related: Read our home improvement articles
2. Medical bills
The last thing you need is the cost of health care to stay on track. Approximately 49% of American adults say they do not need medical care because they are worried about unforeseen bills, and 44% do not have the money to pay for an unforeseen medical bill. The Harris Paul on behalf of the American Heart Association.
Americans may not be able to afford some medical bills, and they can rely on two methods to help them – finance and negotiation.
First, you can use private loans for anything, including medical loans. Second, Ecufax, one of the three major credit bureaus, reports that “medical bills are not always stoned.” If you are having a medical emergency, you may be able to negotiate medical bills with your doctor or hospital.
If you are worried about VV-19 or other medical issues, such as private loans, there are resources that can help you get 5% of your survey respondents access to care used during the epidemic.
3. Debt consolidation
Debt consolidation is when a borrower takes out a new loan and uses the money to pay off other debts, including credit cards, car loans, student loans, and other personal loans. Some consumers have resorted to debt consolidation loans to save money on high-interest loans, as consumers need to tighten their spending and maintain their cash flow.
Debt consolidation loans move from one loan to one loan with one monthly payment. This will help lower your interest rates, streamline payments, and otherwise improve your credit rating – all aspects of which people focus on at unusual times.
For example, suppose you have three credit cards with the following balances.
- Credit Card a: $ 3,000
- Credit card b: $ 2,000
- Credit Card C$ 5,000
In this example, on three cards, you owe a total of $ 10,000 between the annual percentage rate (APR) of 16% and 25%. If you choose to take out a debt consolidation loan, you may be eligible for a low interest rate, for example 8%. This not only increases your interest rate over time, but also helps you pay off your debt faster and manage one monthly payment with three.
4. Vehicle financing
If you do not have a stockpile of cash around you, you need to rely on money to buy a new or used car. Although car loans are the most common means of vehicle financing, borrowers can use private loans, according to an Ipsos-Forbes consultant survey.
Why would you want to use a personal loan for car finance? Most private loans are unsecured, which means that lenders have something to secure, such as real estate or savings accounts, and they do not want the lender to guarantee that you can repay it if you are unable to pay. . In addition, private loans usually do not require an advance payment or do not impose restrictions on the type of car you can buy.
Car loans, on the other hand, generally require an advance payment and place restrictions on the type of car you can buy, such as cars over the age of 10. In addition, the car you are financing will be used as collateral, which means that if you cannot repay the loan, the lender can take your car back. However, car loans usually come with low interest rates.
The type of car you want to buy and the terms you want to accept must determine which financial option is best for you.
Related: Private Loans Vs. Car Loans – How to Finish Your Car?
You cannot predict car repair bills, and it can be difficult to pay them if you do not have an emergency fund. If you are hit by a major car repair bill and find yourself pinched, you can use personal loans to help cover the cost. You can also use a credit card: However, interest rates are higher on credit cards compared to private loans, which means you have to pay more over the age of the loan.
For example, suppose you had a $ 1,400 car repair bill. Here’s how to pay for a personal loan with a credit card:
- If you take out a personal loan with 10% interest and 12-month repayment terms, you will pay $ 1,476.99 – $ 76.99 plus interest and $ 123.08 monthly fee – Forbes Consultant shows a personal loan calculator.
- If you use an 18% credit card and pay your balance in the same 12 months, you will pay $ 1,529 – including $ 129 interest and a $ 139 monthly fee.
Cost savings may be one of the reasons why Americans choose to pay for auto repairs with private loans compared to other financial methods, such as credit cards.
Why don’t Americans take out private loans when the epidemic occurs?
Former United States President Donald Trump has signed the CARES law, a $ 2 trillion stimulus package, in March 2020, with Americans experiencing the first sign of relief. Includes $ 1,200 direct payments to most U.S. taxpayers. . Trump signed a second stimulus package in December 2020, which included another round of direct payments – this time for $ 600.
While these may be helpful in the short term, just $ 1,800 is not enough to meet the needs of people with persistent financial problems, such as the financial crisis.
When many Americans need more money, they can expect people to take out private loans – because the financial system is so flexible, people can use private loans to reduce debt, higher education costs, and housing costs. Purchases. However, that did not happen. According to a March Ipsos-Forbes consultant survey, 76% of people did not take out private loans.
Here are two possible reasons why Americans do not take out private loans.
1. Strengthening requirements for lenders
Banks and online lenders typically evaluate their credit score and history, earnings, debt-to-income ratio (DTA) and other factors, including credit eligibility. In most cases, lenders require excellent credit (670 or more), an annual salary of at least $ 24,000, and a debt-to-income ratio (DTA) of 36% or less.
However, in times of economic instability, lenders tighten their personal lending standards. Strict eligibility requirements could prevent the borrower from becoming a debt consolidator or an unstable income earner.
While we do not know exactly how lenders tighten their requirements, we expect them to be more stringent when evaluating private loan applications. For example, due to the storm of unemployment, lenders have increased their minimum annual income and credit score requirements to protect themselves from risky borrowers.
2. Borrowers can rely on other sources of funding
Although private loans are a common source of funding, there are other ways to get financial support, including:
- Credit cards. Credit cards are a great way to make money up to your credit limit. You can reuse your existing credit when you pay your balance: At the end of the month, any unpaid balance is stored until interest is fully paid. Best credit cards offer rewards and benefits such as interest financing, which makes them more attractive than personal loans.
- Private loan line. Credit lines allow borrowers to withdraw money as needed, compared to a total loan. You only pay interest on the money you borrow and you are responsible for making regular payments to cover the principal and interest.
- HELOC. HELOCs are loans that homeowners can take out, using the property in their home as collateral. Homeowners can borrow 80% to 85% of their mortgage and use the money as needed. Borrowers pay interest only on the money they take out of their line of credit.
- Family and friends. Some people may be able to borrow money from family and friends. If you are not eligible for another source of income, this may be a convenient way to make money, but it comes with its own risks. People who take it this way should list payment terms and interest rates to make sure everyone understands their rights and responsibilities.
All figures, unless specified, are from Ipsos. The total sample size was 927 adults. Field work will be done from March 16 to 17, 2021. The study was conducted online. The figures are weighted by all American adults (ages 18+).