Here’s a jaw-dropping statistic: American consumers reached a record $177.9 billion in unsecured personal loans.
The findings stem from Personal loan statistics for 2022, a new report from The Ascent. That same analysis, according to data from credit bureau giant TransUnion, found that the average unsecured personal loan balance is $9,896, higher than the average $6,656 for borrowers getting new loans.
The latter figure was reported to be the highest average balance in some time, which is likely due to increased borrowing in 2021 and early 2022. The Ascent assumed the new loan balances were rose to $7,126 in the second quarter of 2021, up 36%. of $5,213 in the first quarter of last year.
David Chang, personal finance expert at The Ascent, explained why personal loans are at all-time highs for black Americans. He says there is a big racial wealth gap between black and white Americans. Citing data from the Federal Reserve, Chang noted that the median net worth of a typical white household in 2019 was $188,200. He says that’s nearly eight times more than a typical black household at $24,100. He says the poverty rate for black Americans (21.2%) is more than 2.3 times that of white Americans (9%) and that blacks have much higher unemployment rates than any other ethnic group.
“The huge disparity in net worth, income, and employment is one of the main reasons black Americans struggle with debt. It is also a major factor in black Americans being hit harder during the pandemic.
And because of the credit gap, Chang explained, many black Americans are resorting to payday loans to make ends meet. He says the average interest rate on a payday loan is 391%.
Yet help is at hand. Chang says there are many financial resources, advocacy organizations and community support groups to help secure funding or manage existing loans. He says here are a few for black Americans. He says they include the Black Cooperative Investment Fund (BCIF), which he says provides microloans to the black community through pooled funds.
He noted that another is Operation HOPE. Chang says this nonprofit organization has programs to help Black Americans successfully manage their money, own a home, start a business, or recover from a disaster, including a hurricane, tornado, a fire and the COVID-19 pandemic.
He suggested Modest Needs, a nonprofit that “provides short-term financial assistance to individuals and families in temporary crisis who, because they work and live just above the poverty line, are not eligible for most conventional social assistance”.
There were some bright spots in The Ascent report. He reported that interest rates on personal loans are low, creating a chance for those in need of a loan to get a good deal. Although crime rates may not be at their lowest point, they are better than before the COVID-19 crisis.