High-credit-score consumers are using personal loans to grow wealth, says a new study.
One of the greatest benefits of having a good credit score is that it’s less expensive to borrow money when you need it. Other advantages of having a good credit score include having an easier time getting approved for a new apartment and receiving the best rates on auto and homes insurance.
Those with excellent credit are often provided the best interest rates and loan terms, which contributes to the fact that they incur greater personal loan debts than those with lower credit scores.
In fact, according to a recent LendingTree survey, despite the fact that the majority of personal loans taken out by borrowers with good credit scores were for debt consolidation, same borrowers spent the most on personal loans to finance home improvements and business-related expenses. The average amount borrowed for home improvements was $21,510, while the average amount borrowed for business reasons was $22,778.
The study examined personal loan data from April 2021 to March 2022 and classified a high credit score as 720 or higher.
Below, Select examines why home upgrades and business expenses accounted for the greatest loan amounts for borrowers with excellent credit.
Why borrowers with the highest credit scores took out the most loans to cover home improvements and business expenditures
A plausible explanation for why high-score borrowers spend the most on financing home improvements and company expenses is that upgrading a home or starting a business often demands a substantial amount of capital and, consequently, significant loans.
In addition to this, high-score borrowers spent the most on these loan objectives because they viewed them as investments that would help them accumulate wealth over time.
Matt Schulz, chief credit analyst at LendingTree, says in a corporate release, “Having a larger financial cushion for error enables high-score, high-income consumers to use debt as an investment.” So that they can incur debt to repair their property and raise its worth, or to launch a small business that can create more income for their family.
This is not to argue that individuals with poorer credit scores choose not to use personal loans as an investment; rather, they may not be able to take on bigger debt loads that need larger monthly payments. The lower a person’s credit score, the less access they will have to substantial borrowing power, as lenders consider them as less likely to repay their loans than borrowers with a higher credit score.
Personal loan alternatives for all borrowers
When it comes to obtaining a personal loan, regardless of the size, the good news is that virtually anyone may do so. There are both lenders who cater to clients with high and low credit scores.
Upstart, which allows borrowers to apply for up to $50,000 and has a minimum credit score requirement of 600, provides the greatest personal loans for people with average or good credit. Upstart may approve candidates with no credit history under some circumstances. Additionally, loan periods range from 36 to 60 months, giving you adequate time to repay your debt. Keep in mind that if you are approved despite having a low credit score, you may be liable to a higher interest rate.
LightStream, which offers low-interest loans with flexible terms to borrowers with good credit or higher, should be considered by borrowers with exceptional credit who are looking for the best personal loans.
Those with great credit who enrol in autopay are eligible for some of the lowest interest rates, ranging from 3.49 percent to 19.99 percent APR*.
Note, however, that LightStream does not offer small company financing, if the subject of this essay has inspired you. However, you can obtain a LightStream personal loan for renovations such as bathroom or kitchen refurbishment.
Other alternatives for home improvement and small business funding
There are numerous ways to fund a home improvement project or a small business. Alternatives to personal loans include storing money in a high-yield savings account to pay in cash, obtaining a revolving home equity line of credit, commonly known as a HELOC — expressly for funding home repairs — and utilising a credit card.
The best credit cards for financing a home renovation include the Chase Freedom Unlimited® for its introductory 0% APR on new purchases – you’ll receive up to 15 months of interest-free financing on new purchases to cover the cost of your project (after, 16.49 percent to 25.24 percent variable APR). Thus, you will have nearly a year to save up for home repairs. Additionally, you will get cash back on purchases.