If you ask most American’s what the largest debt category in the US today is, most would say credit card debt or student debt, and in the past they would not have been wrong, but these days the largest growing category is personal loans. New financial tech companies have changed the “game” when it comes to applying for a personal loan. It is now easier to qualify for a loan than it ever was before with traditional banks or credit unions. These unsecured loans have given people options for their financial needs.

A 12% increase in 2019, coming to an approximate total of $300 billion dollars in personal loans has shown that for Boomers and Millennials personal loans are be best solution for debt consolidations and large purchases. Baby Boomers have the highest rates of taking out personal loans and Millennials come in a close second.  Personal loan debt has more than doubled the growth of credit card debt in the last year and it almost the highest level of debt in history!

These loans can be helpful, but consumers must be aware of the risks involved with taking out one of these loans.

1. Collateral is often needed

For many people who decide to look into personal loans, this is a necessary option because they do not have strong credit. Due to this fact, many people have to put their personal property on the line such as their home! Before getting into a loan that you think will help you, make sure to weigh your options and know that you can make the payments and that it is going to be helpful for you.

2. No Perks

While is may seem like a good idea to consolidate or use a loan for a big purchase because it won’t go on your credit, just remember there are no points or travel rewards like you get with credit cards, so make sure it is a lower interest rate that will make the purchase easier before applying.

3. Shorter payment period

There is often a shorter payoff period for personal loans. Make sure you can pay the amount you need in the time you will be given.

4. Is there another option with a lower interest rate?

If you are consolidating, it may be a option to look into a balance transfer, rather than taking out a personal loan for a high interest rate. This usually has a short payoff period just like the personal loan, but it is often a much lower interest rate for the promotional period.

5. Is it going to help?

Make sure the high payments and interest won’t end up costing more each month than the current bills you are paying and that you can cover the monthly payments.