One type of borrowing is a secured loan, where the borrower puts up collateral, such as a home or car, to secure the loan. If the borrower is unable to repay the loan, the lender can take possession of the collateral. An example of a secured loan is a mortgage, where a borrower uses their home as collateral to obtain a loan to purchase the home.
As of 2021, the amount of secured loans made by Americans has been increasing. According to data from the Federal Reserve, the total outstanding balance of secured loans in the United States was approximately $9.51 trillion in Q4 2020, an increase of 5.2% from the previous year.
The most common type of secured loan is a mortgage, which accounted for nearly $9.14 trillion of the total outstanding balance. This includes both first-lien and junior-lien mortgages. The majority of these loans are for the purpose of purchasing a home, but a significant portion are also used for home equity lines of credit (HELOCs) and cash-out refinances.
The second largest category of secured loans is auto loans, which made up about $1.29 trillion of the total outstanding balance. These loans are used to purchase cars, trucks, and other vehicles.
Other types of secured loans include boats, RVs, and personal loans that are secured by collateral such as jewelry or stocks. These types of loans are relatively small in comparison to mortgages and auto loans, making up about $30 billion of the total outstanding balance.
Despite the economic impact of the COVID-19 pandemic, the amount of secured loans made by Americans has remained relatively stable. The Federal Reserve’s data shows that the delinquency rates for secured loans, such as mortgages and auto loans, have remained low.
The Federal Reserve has also taken steps to support the housing market by purchasing mortgage-backed securities, which has helped to keep interest rates low and make it easier for Americans to obtain mortgages.
However, it is worth noting that while the overall secured loan market has remained relatively stable, the pandemic has disproportionately affected low-income and minority communities, leading to a widening of the racial wealth gap.
Another type of borrowing is an unsecured loan, where the borrower does not put up any collateral. These types of loans are typically given based on the borrower’s creditworthiness and ability to repay the loan. An example of an unsecured loan is a personal loan, which can be used for a variety of purposes, such as home improvements or debt consolidation.
As of 2021, the amount of unsecured loans outstanding in the United States is difficult to measure exactly, as it encompasses a wide range of debt types and sources. However, some estimates can be made based on data from various sources.
One major source of unsecured debt in the US is credit card debt. According to data from the Federal Reserve, as of the third quarter of 2020, total credit card debt in the US was approximately $1.1 trillion. This figure has been steadily increasing in recent years, despite some fluctuations caused by the COVID-19 pandemic.
Another major source of unsecured debt in the US is personal loans. According to data from the Federal Reserve, as of the first quarter of 2020, total outstanding personal loan debt in the US was approximately $292 billion. This figure has also been steadily increasing in recent years.
Unsecured loans are also available from various online platforms and alternative lenders. These types of loans can be more difficult to track, but some estimates put the total amount of outstanding loans from these sources at around $150 billion.
Student loan debt is also considered unsecured loan in US, as of 2021 the total outstanding student loan debt in the US is around $1.7 trillion. This figure has been steadily increasing in recent years, with the majority of the debt held by the federal government.
In total, it is estimated that the amount of unsecured loans outstanding in the US as of 2021 is around $3.3 trillion. However, it is important to note that this figure is a rough estimate and may not account for all types of unsecured debt. Additionally, it is important to note that this figure does not include any secured loans.
It’s worth mentioning that, the unsecured loans outstanding in the US as of 2021 is relatively high, and it may have a negative impact on the economy. High levels of unsecured debt can lead to defaults and foreclosures, which can cause financial stress for individuals and families. It can also lead to a decrease in consumer spending, which can negatively impact businesses and the overall economy.
Interest is the cost of borrowing money, and it is typically expressed as a percentage of the loan amount. The interest rate can vary depending on the type of loan, the lender, and the borrower’s creditworthiness. For example, a borrower with excellent credit may be able to obtain a lower interest rate on a loan than a borrower with poor credit.
When borrowing money, it is important to consider the total cost of the loan, including the interest rate, fees, and any other charges. It is also important to consider one’s ability to repay the loan, as defaulting on a loan can have serious consequences, such as damage to one’s credit score.
Now, a 5 question quiz on borrowing money:
- What is borrowing money?
- What is a secured loan?
- What is an unsecured loan?
- What is interest?
- Why is it important to consider the total cost of a loan and one’s ability to repay it?
Answers:
- The act of obtaining funds from a lender, such as a bank or financial institution, with the promise to repay the loan at a later date, usually with interest.
- A type of loan where the borrower puts up collateral, such as a home or car, to secure the loan.
- A type of loan where the borrower does not put up any collateral.
- The cost of borrowing money, typically expressed as a percentage of the loan amount.
- Defaulting on a loan can have serious consequences, such as damage to one’s credit score. It’s important to consider the total cost of the loan, including the interest rate, fees, and any other charges before taking a loan and make sure one’s ability to repay the loan.
