Personal loans are the fastest-growing debt category in the country. The outstanding amount has nearly tripled, growing from $55.3 billion to nearly $160 billion in the last decade. Just as in every other industry, technology has made all the difference, with Fintech companies creating algorithms that can make instant credit decisions.

The result is personal loans that may carry much lower interest rates than credit cards. In fact, a new survey by Lending Tree shows that two-thirds of all personal loans this past year were taken out for either loan consolidation or credit card refinancing.

A borrower with a good credit score can get up to $50,000 in loans, but the average loan is far smaller. Lending Tree says members of Generation X take out the biggest loans, with an average amount of $9,722. About 19 million people have a personal loan, while 176 million people have a credit card.

The report shows the average APR (annual percentage rate) paid on personal loans by borrowers with good credit (760 or above) was 10.19%. However, those with scores between 640 and 680 paid as much as 25 percent in interest, and rates on sub-prime loans can be even higher.

How Online Loans Work

It’s important to understand how these online personal loans work. Companies can offer online loans because they are able to almost instantly assess your likelihood of repayment. Their programs tell them how large a loan to make, and how to price it in terms of interest rates. Some of the best known of these lenders are SoFI, Lending Club, Marcus, and Prosper, among literally dozens of others.

It pays to shop around, because you could see as much as a ten percentage point interest rate differential in the quotes from different lenders, given the same information. To make that search easier, several companies aggregate loan offers. LendingTree.com, CreditKarma.com, and Credible are three of the most widely used sites.

You fill out an online form at these sites to get the process started. It’s not a loan application; the information is used to assess which lenders might be interested in making a loan offer. Although you provide your address and birthdate and Social Security number, this is not listed as a credit inquiry on your credit report. The industry calls it a “soft pull.” You’ll also be asked the purpose of the loan.

Then, literally within seconds, Lending Tree can provide a list of “pre-qualified offers” from various personal loan lenders. They rates and terms will vary. If you’re interested in one or two, you can click to be taken directly to the lender’s website, where you will be asked to fill out a loan application online. They will respond quickly, and if you are approved, you can expect to receive the money transferred to your bank account in as little as 48 hours.

Oh yes, there’s the little detail of loan <> They will ask for an ability to automatically draft a monthly repayment from your bank account. That will lower your rate significantly. And if you <> repay on time? This is an unsecured loan, so they can send your account to collection –just as would happen with a credit card balance. And they can always garnish your wages if they get a court judgment against you.

Some Warnings

The entire process of getting an online loan sounds too easy to be true. Of course, if you have terrible credit, you won’t qualify – or the rates will be sky-high. But even if you do qualify, consider the terms carefully.

• Start by understanding your own financial situation – and how much money you really have available to make loan payments.
• Compare loans carefully – not only the interest rate or monthly payment amount, but any fees or prepayment penalties.
• If you’re paying off a credit card, close it! (Or at least take it out of your wallet, hide it, and don’t make any new charges.)

And one more warning: Credit scoring companies like FICO have just announced they will deal with the growing amount of personal loans by changing their scoring system to reflect the dangers these unsecured loans present to credit granters, so taking out a personal loan may have a significant impact on your credit score.

And even if you do qualify for an affordable loan, remember the old adage: If you want to get out of a deep hole, stop digging! Taking on more debt – even less expensive debt – is not the road to prosperity. And that’s The Savage Truth.