More and more Americans are turning to pricy personal loans to cover everyday expenses — particularly Gen Zers.
According to a new report from loan platform LendingTree. The number of consumers taking out a personal loan to cover everyday bills has more than doubled in the last three years, jumping from 3.4% to 8.2%.
But in the Gen Z category, the numbers are even higher, pointing to a worrisome trend that may make it “extremely difficult to get ahead financially” for today’s younger consumers.
If you’re borrowing to pay essential bills, it becomes extremely difficult to get ahead financially.
1 in 10 Gen Zers is turning to a personal loan to cover bills
LendingTree’s report looks at personal loan uses — and the increasing number of borrowers marking “everyday bills” as the reason for taking out cash via the popular online marketplace. It’s now the fourth-most popular reason on the site (in 2023, it was No. 10.)
It’s particularly common with younger consumers. A whopping 10.5% of Gen Zers — those aged 18 to 29 — who requested a personal loan in the last year said they needed it to cover everyday costs. That’s more than Millennials (9.3%), Gen Xers (6.6%), and Baby Boomers (5.6%).
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“Younger borrowers are coming of age in a much tougher financial environment, where essentials like housing, transportation and insurance are taking up a bigger share of income than they did for prior generations,” said Matt Schulz, LendingTree’s chief consumer finance analyst, in the report.
“At the same time, many haven’t had the chance to build savings cushions yet, so when everyday costs spike, they may turn to credit to fill the gap. Previous generations certainly faced challenges early on, but costs were generally lower relative to income, making it a bit easier to stay afloat without borrowing for basic needs.”
Everyday borrowing is most common in lower credit score tiers
The report also shows that borrowing cash for everyday expenses is most common among lower-credit borrowers. Over 9% of requests came from those with credit scores under 580, while almost 8% came from borrowers in the 580 to 669 range.
The average credit score for those taking out a personal loan for everyday costs was 574. That’s considered a “poor” score, by FICO standards.
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Since higher credit utilization can reduce your credit score, this ultimately makes it harder to improve credit scores in the long run, too. It can also hold younger consumers back from achieving other financial goals down the line.
“When more borrowers turn to personal loans just to cover everyday bills, it’s a sign that budgets are stretched thin and that many are relying on credit to bridge routine shortfalls, not just emergencies,” Schulz said. “Unfortunately, it’s the reality for many Americans. If you’re borrowing to pay essential bills, it becomes extremely difficult to get ahead financially. It means there’s no extra money to put toward emergency funds, retirement savings, or any other big financial goals.”
When (and where) consumers are borrowing for everyday costs
Consumers tend to borrow for everyday costs most around back-to-school season (September) and the holidays (December). In December, 9.4% of personal loan requests on LendingTree were for everyday expenses.
The trend is also more common in some areas than others. In Louisiana, for example, one in 10 personal loan requests is for everyday costs. New Hampshire and Pennsylvania aren’t far behind.
“That hints at greater financial strain for families in those states — whether that’s due to lower incomes, higher relative costs, or less access to savings,” Schulz said. “It might also signal that they don’t have any other good options.”
Nevada, Oregon, Massachusetts, California, and Utah residents are least likely to request a personal loan for everyday bills. The report attributes this to higher household incomes, higher home values, and stronger credit profiles than other parts of the country.
Related: Mortgage refinances tumble as high rates quash borrower savings
