The personal credit market is facing strong demand. In August, Centrix announced a 10-month high in personal borrowing, with more than $500 million in new loans. This rise suggests that consumers are turning to personal loans to cover their expenses in the face of high inflation and rising interest rates. Over the past three months, searches for personal loans on Google have increased by 22%, again demonstrating the strong demand for these loans.
Data from online loan provider Loansmart shows the average personal loan size has risen from $6,000 to $14,000. But it’s not just new borrowing, says chief executive Murray Greig. “Many people are looking for ways to consolidate their existing debt to make repayments more affordable. Certainly, it makes sense to look for cheaper alternatives to high-cost loans.” Greig reports that the number of requests is high, but approval rates are about 1.5% lower than in previous months. Affordability is a factor in lower approval rates because borrowers don’t necessarily have the discretionary income to take out another loan. This is where debt consolidation can play a role. Saving on existing loan repayments while getting a top-up at the same time from a low-cost lender is a better alternative to taking out another high-cost loan. The difference between a 25% interest rate and a 10% interest rate is huge, and borrowers should shop around to try and get the best rate.
As household finances continue to tighten, personal loans can provide immediate relief, but it is important that borrowers carefully consider their financial situation before taking on new debt. Check all your current loans and interest rates and request a loan appraisal to see if you can save anything. You can also estimate how much you will save using a debt consolidation calculator. Although the actual savings will depend on your financial situation.
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