Personal loans

Personal loans for cash management

There has been a confluence of events to set the stage for the disintermediation of retail banking – and for the growth of lending facilitated by online platforms to continue.

loan club Financial Health Officer Anuj Nayar said regulations have been updated, connectivity has improved and everyone has computing power on their desk or in their pocket.

As a result, personal loans will be embraced by cash-strapped consumers, yes, but even individuals and families with healthy incomes.

Looking ahead, Nayar said, demand for personal loans (currently used by 24% of the general population) is expected to increase. We may have, collectively as a society, saved money during the pandemic, but economies are reopening, so the main drivers of credit spending (i.e. consumption) are returning to a positive territory. As people take on more debt, they will end up taking out personal loans even more often in an effort to manage their cash flow.

The conversation took place against a backdrop where the latest version of the Paycheck-To-Paycheck Reality Check Report found that 32% of millennials and bridge millennials who live paycheck to paycheck use personal loans.

Read more: Living Paycheck to Paycheck triggers personal loan application

That’s a higher rate than seen in other age groups, but Nayar said “it’s no surprise” millennials are turning to these loans.

As he noted, this generation has been “hampered by the last two major recessions.” They graduated from high school just after the recession of 2001, then faced the Great Financial Crisis and subsequent Great Recessions in the early years of their working lives and in the peak years of income at early thirties.

Cash-strapped and indebted

Along the way, they took on a lot more debt, Nayar said. College fees have led to high student loans, and the average millennial has more than $27,000 in personal debt, excluding mortgages, covering credit card debt, installment loans and beyond.

Thus, they avail of personal loans with the aim of reaching new milestones in their lives – when they get married, start a family or buy a house. With the pressure of being the “sandwich generation” and caring for children while simultaneously caring for elderly parents, millennials are finding relief in personal loans.

This does not mean that only young people borrow. The same report found that 57% of personal loan users have no difficulty meeting their financial obligations.

As Nayar said, personal loans have become a “common financial tool for dealing with debt and managing cash flow so they can do things like plan for the unexpected and build a savings cushion.”

Most Americans, he said, have less than $2,000 in savings, and a single event — a medical emergency, a car accident, or the need to send money to a member of the family – can wipe out this cushion.

So, consumers take out these personal loans to pay off their debts, like credit card loans, by consolidating these liabilities with the goal of paying them off or paying them off. This frees up capital to build up (very useful) cash cushions.

“It can be helpful not having to remember all these different due dates to pay off all the different debts one may have accumulated over the years,” Nayar said.

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