25% of Debtors Benefit from a Personal Loan
May 8th, 2019 @ 8:48 PM by Amber Nelson
A new study from TransUnion found that one in four people who take out a small personal loan after falling behind in their other debts are able to catch up and get current on all payments within a year.
Of course, the flip side to that statistic is that the majority – 75% – of borrowers never climbed back on top of their debt load. They fell behind on either the new debt, the old debts or both, making the situation worse.
So how do 25% of borrowers use that personal loan to turn things around financially? “We think most of those borrowers are trying to get over a hurdle,” said Kristen Bataillon, senior manager of research and consulting at TransUnion. “It’s an acute situation and they need someone to give them a hand to get through that hard time.”
The quarter of borrowers who benefited from a personal loan had many similar credit profile characteristics. They usually had at least one credit account that had existed for 10 years or longer. They had an average of eight open and active credit accounts and had more credit accounts than the other three-quarters. Those borrowers also had not opened as many credit accounts in the past two years.
TransUnion Vice President of Research and Consulting Matt Komos believes those factors indicate borrowers with more responsible credit behavior. “These are consumers who have the willingness to pay but not the ability in that moment,” he said.
Most of the personal loans borrowed in the study were for amounts between $500 and $2,000. They were also often made with a new lender from any previous loans.
TransUnion believes that its findings might sway some lenders to make new, small personal loans to existing customers when they fall on hard times. For borrowers who fit the profile, that small infusion of cash could help them avoid financial ruin.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.