High Credit Borrowers Use Personal Loans to Build Wealth

There are lots of advantages to having a good credit score – you’ll have an easier time getting that new apartment approved and you’ll often get the best rates on car and home insurance, for example – but one of the most big advantages is that it is cheaper to borrow money when you need it.

Those with strong credit are generally offered the best interest rates and loan terms, which is part of why they end up taking on more personal debt than their low-credit counterparts.

Indeed, according to a recent study by LendingTree, even though the majority of personal loans taken out by high-scoring borrowers were for debt consolidation, these borrowers tended to spend the most on personal loans to fund home improvements and business-related expenses. Those borrowing for home renovations borrowed an average of $21,510, while those borrowing for business borrowed an average of $22,778.

The study looked at data on personal loans closed between April 2021 and March 2022 and defined a high credit score as 720 and above.

Below, Select takes a closer look at why home improvements and business expenses were the largest loan amounts for borrowers with high credit scores.

One of the obvious reasons why top-rated borrowers spent the most on financing home renovations and business expenses may simply be that renovating a home or financing a business usually requires a lot of capital. , and therefore large loans.

But beyond that fact, the highest-rated borrowers spent the most on these loans, as they viewed them as investments that, over time, would help them. build wealth.

“Having a greater margin of financial error allows high-scoring, high-income people to use debt as an investment,” says Matt Schulzchief credit analyst at LendingTree, in a company statement. “So they may go into debt to improve their home and increase its value or to start a small business that can help generate more income for the family.”

This is not to say that those with lower credit scores choose not to use personal loans as an investment, but rather that they may not have the capacity to take on larger debts that result in payments. larger monthly. The lower an individual’s credit score, the less access they will have to high borrowing power, as lenders view such borrowers as less likely to repay their debts as someone with a high credit score.

The good news when it comes to taking out a personal loan, no matter the amount, is that anyone can get one. There are lenders who cater to borrowers with high credit scores, just as there are some who cater to borrowers with lower credit scores.

If you are looking for the best personal loans for those with fair or good credit, consider Reached, which allows borrowers to request up to $50,000 and has a minimum credit score requirement of 600. Upstart will make exceptions in some cases and may approve applicants with no credit history. It also offers long-term loans ranging from 36 to 60 months to give you enough time to pay off your debt. Keep in mind that if you are approved with a lower credit score, you may still be subject to paying a higher interest rate.

Top rated borrowers looking for the best personal loans for great credit should consider LightStream, which offers low-interest loans with flexible terms for borrowers with good credit or better. Those with excellent credit can take advantage of some of the lowest interest rates, which range from 3.49% to 19.99% APR*, when they also sign up for autopay. Note, however, that LightStream does not offer loans for small businesses, in case the subject of this article inspired you. You can, however, obtain a LightStream personal loan to undertake projects such as renovating your bathroom or your kitchen.

There are many ways to finance a home improvement or a small business. Beyond personal loans, alternatives include saving in a high-yield savings account to pay cash, taking out a revolving home equity line of credit, also called HELOC – to finance home renovations, in particular – or use a credit card.

The best credit cards to help pay for your next home renovation include the Hunt Unlimited Freedom® for its introductory APR of 0% on new purchases – you’ll get up to 15 months of interest-free financing on new purchases to cover the cost of your project (after, 16.49% to 25.24% Variable APR). That way, you’ll have over a year to fund your home repairs. In addition, you will earn money on your purchases.

The best small business credit cards can help finance business expenses while offering everything from interest-free rewards and financing on new purchases to luxurious travel perks, extended warranties and insurance, among other business-related perks. business.

With The Blue Business® Plus credit card from American Expressfor example, cardholders can benefit from an introductory APR at zero rates for 12 months on purchases from the date of account opening (after, variable APR from 14.74% to 22.74%, see rates and fees). This special financing period can provide you with an interest-free period of up to one year. You’ll also earn 2X the Membership Rewards points on qualifying purchases up to $50,000 per year (1x thereafter).

For rates and fees for the Blue Business® Plus credit card from American Express, click here.

*The terms of your LightStream loan, including APR, may differ depending on the purpose of the loan, amount, term and your credit profile. Excellent credit is required to qualify for the lowest rates. The fare is shown with the AutoPay discount. The AutoPay rebate is only available before the loan is funded. Rates without AutoPay are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and conditions are subject to change without notice. Payment Example: Monthly payments for a $10,000 loan at 3.99% APR with a term of three years would result in 36 monthly payments of $295.20.