Personal loans interest rate forecast for 2020: Attractive rates should stick around

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Getting a personal loan with a relatively low interest rate isn’t expected to be a problem in 2020, as long as a much feared an economic downturn doesn’t rear its head.

Borrowers can get a personal loan from traditional banks, credit unions and online lenders. They are lump-sum, fixed-rate loans that don’t require the borrower to put up collateral. Consumers with the best credit can qualify for loans around 6 percent, but rates can exceed 35 percent for borrowers with lackluster credit.

Personal loan rates should hold steady in 2020

Barring any shocks to the economy, such as a nosedive in housing prices, interest rates on personal loans in 2020 should be stable.

“We haven’t seen much movement in rates over the last couple years, and I don’t think that’s going to change this year, especially if the Federal Reserve stands pat,” says Greg McBride, CFA, Bankrate chief financial analyst.

The Federal Reserve cut rates three times in 2019 and indicated at its final meeting of the year that rates would not be rising in 2020.

“The bigger risk on the personal loan side is if there’s a broader economic downturn, because in that environment, delinquencies and defaults rise and lenders really scale back,” McBride says.

Strong market for personal loans expected

Balances on unsecured personal loans are expected to grow 11 percent in 2020, with total loan balances reaching $180 billion, according to a consumer credit forecast by credit-reporting agency TransUnion.

“Loan volumes will remain at healthy levels, as consumers continue to find these loans to be a valuable addition to their wallets,” says Liz Pagel, senior vice president and consumer lending business leader at TransUnion. Pagel said debt consolidation will drive most of the growth in personal loans.

Barring any shocks to the economy, such as a nosedive in housing prices, interest rates on personal loans in 2020 should be stable.

Consumers typically use personal loans to consolidate debt, pay for a wedding or other big expense or to cover emergency expenses.

“Turns out, personal loans are most popular among consumers between ages 40 to 49,” says Jason Laky, executive vice president of financial services at TransUnion. “Folks in the middle of their lives and careers.”

The product is especially attractive when the economy is strong, TransUnion experts note.

“Low unemployment rates, continued wage growth and an overall sound economy are making this positive performance hold true,” says Matt Komos, vice president of research and consulting for TransUnion’s financial services business unit.

Economic downturn would hurt credit availability

Should the U.S. economy take a turn for the worse, the availability of personal loans would shrink, McBride says, and many people would not be able to turn to a personal loan for extra cash.

“If the economy slows, the interest rate won’t be your worry as much as availability of credit. That’s particularly the case for those who have middling credit,” McBride says. “People with strong credit will find credit availability won’t be as much of an issue in an economic slowdown.”