This Was the Average Personal Loan Balance in 2021

The number may surprise you.

If you need money in a pinch, you have some options. You could charge up a balance on your credit cards, but then you risk racking up scores of interest and damaging your credit score in the process. You could also borrow against your home equity if you own a home -- but that won't work if you rent.

As such, many consumers turn to personal loans when they have a need for money and don't want to pay an exorbitant amount of interest on the sum they have to borrow. Personal loans are very flexible in that you can take one out and use that money for any purpose. And, they often close quickly so that if your need for money is pressing, you don't have to wait weeks to get that cash. Quite the contrary -- you can sometimes get your money within days.

But it's important not to go overboard when taking out a personal loan. The more you borrow, the more you might struggle to repay that sum.

What did Americans borrow in 2021?

Last year, the average personal loan balance rose to $17,064, reports Experian. That represents a 3.7% uptick from 2020.

Now at first glance, that may seem like a large sum of money. But remember, personal loans are often used to renovate a home or cover other such large expenses. So it's easy to see why Americans added to their balances last year and borrowed so much.

The pandemic forced a lot of people to spend more time at home. And so in 2020 and 2021, many homeowners decided to renovate to make their living spaces more comfortable. That could explain why personal loan balances grew.

How much of a personal loan should you take out?

No matter what type of debt you're taking on, your goal should be to really only borrow what you need -- not more. The higher your balance, the more interest you'll pay, and the more difficult your loan might be to keep up with.

If you're contemplating a personal loan, think about why you need that money. Maybe you recently racked up $5,000 in medical bills and need a loan to pay them off. In that case, borrowing $5,000 seems reasonable.

But if you're taking out a personal loan to renovate your home, try to narrow down your costs before putting in that application. You don't want to borrow $20,000 if you really only need $12,000.

How to save money on a personal loan

Unlike other types of loans, like mortgages and auto loans, personal loans are unsecured, so they're not tied to a specific asset, like a house or a vehicle. As such, it's important to have a good credit score at the time of your personal loan application, because the higher that number is, the more competitive a rate you might snag. And the lower that interest rate, the less expensive your loan is apt to be.

This isn't to say that you won't qualify for a personal loan if your credit isn't so great. But in that case, you should expect to pay a higher interest rate on the sum you borrow -- and that's all the more reason to do your best to keep your loan amount to a minimum.