Why High Credit Borrowers Take Larger Personal Loans

Personal loans can undoubtedly be a great financing option for just about any consumer, as they give you access to cash fairly quickly, and often at a lower interest rate than your credit card. standard.

Although borrowers of all credit levels use personal loans, a recent study by LendingTree found that those with higher credit scores take out personal loans that are on average much higher than those taken by their counterparts in low credit rating.

Specifically, the study showed that personal loans for high-scoring borrowers (with credit scores of 720 and above) averaged $18,443, or 122.2% higher than the average for $8,301 for those with a credit score below 720. The study looked at data on closed personal loans. between April 2021 and March 2022.

The reason this data is so important is that it draws our attention to a clearer interpretation of how personal loans play different roles for different types of consumers. You might feel surprised at first that borrowers with high credit ratings take on more personal debt, but there are a few factors at play here.

The LendingTree study infers a few reasons why personal loans for high-score borrowers were on average much higher than for those with lower credit scores.

First, having a better credit score generally gives you access to larger loan amounts, so it’s not as much of a barrier to getting a high loan amount as it can be for someone with a high score. lower credit. Lenders view these borrowers as likely to repay their debts.

Second, high-scoring borrowers also typically have higher incomes and therefore the ability to take out larger loans that involve larger monthly payments.

Third, high-credit borrowers take on more personal debt for a good reason: they’re looking to build wealth. One such example includes borrowing money to finance home improvements, which in turn increase the resale value of one’s home.

“Having a greater margin of financial error allows high-income and high-income people to use debt as an investment,” says Matt Schulz, chief credit analyst at LendingTree, in the company’s press release. .

Borrowers with good credit ratings are certainly in luck as they are more likely to receive the lowest interest rates and the best terms on a personal loan. Regardless of your credit score, however, the good news is that there are options to help just about anyone finance a major purchase.

For those with excellent credit, Select rated LightStream as the best overall personal lender. LightStream offers some of the lowest interest rates available and you can take out a personal loan for almost any purpose except for higher education and small businesses. Plus, you’ll usually receive your funds the same day and there are no origination fees, administration fees or prepayment fees.

Those with fair or good credit may consider our overall top pick: Upstart. Borrowers can request up to $50,000 and the minimum credit score requirement is 600. Applicants with no credit history will also be considered. There are no penalties for prepaying your balance, although Upstart does charge origination fees (up to 8% of the amount you borrow) and late fees ($15 or 5% of the balance overdue, whichever is greater).

Borrowers with bad credit can try LendingPoint, which can approve applicants with a minimum credit score of 580. It also offers fast application with same-day approval and possible next-day funding (after verification and approval of final documents). ). Note that origination fees vary from 0% to 6% and interest rates can reach 35.99%, which is usually the case with personal loans that allow low credit applicants to apply.