Debt consolidation is the most popular reason for getting a personal loan, according to the 2023 Investopedia personal loan consumer survey. Home improvements and large purchases were the next two most common reasons cited for seeking a loan.
Loan costs, including both interest rate and origination fees, were borrowers’ chief considerations when looking to take out a personal loan, according to the survey. When researching loans and lenders, respondents said they turned to lender websites first, many going with a lender they already had a relationship with.
- Debt consolidation is the top reason why borrowers sought or are seeking personal loans.
- Almost half of borrowers (48%) said their biggest concern when evaluating a loan was its cost, an increase from last year when just 39% of respondents said the same thing.
- Lender websites and having a prior relationship with a lender were likely to determine where borrowers ultimately applied for loans, more so than other factors.
Investopedia surveyed 962 existing and potential personal loan borrowers between Aug. 14 and Sept. 15, 2023, to better understand how they research, shop for, and use personal loans.
Debt Consolidation Remains the Top Reason Why Borrowers Seek Personal Loans
We asked current and potential borrowers to choose from a list of purposes for a personal loan they already had, or one they were seeking.
Debt consolidation was the number one reason why 48% of current borrowers got the personal loan, and why 29% of potential borrowers were seeking a personal loan. “The lender had a better interest rate than all of my credit cards, so I ended up just consolidating everything under a personal loan,” said one survey respondent who took out a personal loan for debt consolidation.
Among those with a current personal loan, 17% said they got it to pay for a home improvement. “Within nine months of moving in, the roof was leaking. So we took out the loan to replace the roof because we didn’t have enough equity in the house yet,” said one survey respondent who took out a loan for home improvement. Among potential loan borrowers we surveyed, 26% said they’d get a loan for home improvements.
Covering the cost of a large purchase was cited by 16% of current borrowers and 19% of potential borrowers.
Loan Cost Is the Top Consideration When Shopping for a Loan
When we asked respondents to rank loan features on a scale from most important to least important, almost half of borrowers (48%) ranked the cost of the loan as the most important factor when choosing a personal loan. By comparison, in a similar survey conducted by Investopedia in 2022, 39% of borrowers ranked loan cost as most important.
Just over a third of borrowers (37%) ranked loan characteristics (such as loan amount and repayment term) as the most important factor. Another 14% of responses listed borrowing requirements (such as credit score) first. A mere 2% ranked additional features like reporting to all three credit bureaus as most important.
Borrowers More Sensitive to Interest Rate Than Any Other Cost
For the survey, loan costs include the interest rate, origination fees, any prepayment penalties, and late fees. Among these, 78% of borrower responses ranked APR as the most important factor, followed by origination fee and prepayment fee, both at 10%. Late payment fees were ranked first by just 3% of responses.
In the similar study conducted by Investopedia in 2022, borrowers also ranked APR as the most important cost factors, at 51%. At the same time, over the past year the average interest rate on a two-year unsecured loan has risen from 10.16% to 12.17%, according to the Federal Reserve. The difference between last year’s survey responses and this year’s may suggest that as interest rates have climbed over the past year, so too has borrower sensitivity to overall loan cost and especially interest rates.
Borrowers Apply for Loans Based on Lender Websites, Prior Relationship With Lender
When asked to select the top factors that determined where they applied for a loan, the lender’s website was cited in 48% of current borrower responses.
Survey respondents could choose up to six. Having an existing business relationship was cited in 40% of responses, and third-party reviews (such as by Investopedia), were cited in 26% of responses. Borrowers were also swayed by recommendations from friends, family, and acquaintances (14%) and by national or local advertising (7%).
Maximum APR Borrowers Said They Would Accept on the Low End of Actual Rates
Most borrowers in the survey said the maximum interest rate they would accept for a loan fell between 7.99% and 18.00%.
That range aligns with the lowest advertised APRs among the 72 personal loan lenders in the database Investopedia maintains to evaluate personal loans and lenders, but it may not reflect what borrowers ultimately accept in the marketplace. Data collected separately by Investopedia at the same time this survey was conducted shows that personal loan interest rates on funded loans averaged around 21.00% at that time.
Investopedia conducted a survey of 962 U.S. adults aged 20 to 75 who are currently borrowing or plan to borrow a personal loan from 72 different lenders. Respondents opted-in to an online, self-administered questionnaire from a market research vendor. Data collection took place between Aug. 14, 2023, and Sept. 13, 2023, with semi-structured interviews conducted with 17 respondents from Aug. 30, 2023, to Sept. 15, 2023. Multiple quality checks, including screeners, attention gauges, comprehension evaluations, and logic metrics, among others, were used to ensure only the highest quality responses were included.
To learn how we rate and review personal loans, see our complete Personal Loan Review and Ranking Methodology.