News Feb 16, 2024 02:15 PM EST

Personal Loans Demystified: Your Guide to Borrowing Smart

By Isaiah McCall

Today we're diving deep into the sea of personal loans. Now loans can be as intimidating as a shark in the open water. But trust us, with a bit of understanding and smart strategy, you'll be swimming confidently in no time.

Big Money Big Prizes
(Photo : Getty Images) Big Money Big Prizes

The Rising Tide of Personal Loans

According to LendingTree, as of the third quarter of 2023, 23.2 million Americans have a personal loan. That's a 5.5% increase from the previous year! It's like watching your favorite sports team slowly climb up the league table - impressive, right?

Now, let's talk numbers. As per Forbes, the average personal loan amount for new loans as of Q4 2022 was $8,018 As my friend Bob once said, "That's a lot of doughnuts!" And he wasn't wrong. It was a lot doughnuts. Krispy Kreme donuts. Yum. This number, however, represents a whopping 29% increase since Q4 2019.

Navigating the Waters: Interest Rates

Just like the waves in the ocean, interest rates can ebb and flow. According to data from the Fed, the average personal loan rate was 12.17% during the third quarter of 20233. Reminds me of the time I tried to learn surfing and got swept away by a wave. Let's just say it's crucial to keep an eye on these 'waves' if you don't want to wipe out financially.

But here's some good news. The average rate on a two-year personal loan reached a record low of 8.73% in the second quarter of 20224. It's like finding a calm spot amidst a stormy sea. So, when the rates are low, that might be a good time to jump in.

Borrowing Smart: Tips for the Voyage

Just like you wouldn't set sail without a compass, you shouldn't take out a personal loan without understanding the ins and outs. Here are a few tips to help you navigate:

  1. Understand Your Needs: Personal loans can be used for a variety of purposes. From consolidating high-interest debts to paying for unexpected expenses or making a large purchase. Just like my cousin Sally who used a personal loan to finance her dream wedding in Hawaii.

  2. Shop Around: Different lenders offer different interest rates and terms. So, shop around for the best deal. It's like hunting for the perfect seashell on the beach. You need to dig a little to find the best one.

  3. Check Your Credit Score: Your credit score plays a significant role in determining your eligibility and the interest rate you'll get. So, keep your credit score shipshape.

  4. Read the Fine Print: Always read the loan agreement carefully before signing. Be aware of any fees, penalties, or charges that may be hidden in the fine print5.

In conclusion, personal loans can be a helpful tool when used wisely. Remember, it's not about fearing the ocean but learning how to swim. So put on your life jacket, grab your paddle, and set sail towards your financial goals!

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