Home Improvement the Top Reason for Personal Loans During Pandemic
More people took out personal loans for home improvement projects during the pandemic than any other reason, but loan usage actually declined during that time. Here's why.
Nearly one-quarter of Americans have taken out a personal loan since the coronavirus pandemic took hold in March 2020, according to a survey conducted by Ipsos for Forbes Advisor, with home improvement projects the leading reason why.
Approximately 25 percent of survey responders said they used their personal loans to fund home improvement projects. Forbes also said 70 percent of Americans tackled a home improvement project during the pandemic.
After home improvement, the next most common responses were to pay medical bills (21 percent), debt consolidation (20 percent), financing a vehicle (20 percent) and auto repairs (20 percent). Note: Numbers do not total 100 percent as some surveyors may have answered multiple reasons.
Forbes noted that income levels and family size were factors in personal loan usage. Families with children were more likely to say they used their personal loan to fund a home improvement project, compared to surveyors without children.
Also, part-time workers were more likely to use loan money to pay expenses like medical bills, auto repairs, financing a vehicle, moving expenses or education when compared to full-time workers or those not employed or retired, according to Forbes.
Despite a rocky financial year for many Americans and a boom in home improvement projects, the survey suggested personal loans usage was lower than many experts predicted. One reason, according to Forbes, were stricter restrictions for loan applications, with credit score requirements increasing last year. A Fortunly report noted a six percent decline in the growth of personal loans, with the size of the average loan declining as well.
“There was an additional increase in non-revolving debt in 2020, up 3.9 percent, signaling that people are still relying on various forms of personal loans as a reliable form of financing,” I. Mitic of Fortunly wrote, noting there were 3.1 million new personal accounts in 2020, lower than 2019’s figures.
While personal loans are a popular option for paying off higher interest debts like credit cards, it isn’t often the best option for funding home improvement. Homeowners with substantial equity would more likely benefit from a home equity line of credit (HELOC), cash out refinance or a home equity loan (HEL).