Personal loans are an increasingly popular product, and people are using them to either consolidate some other type of debt, cover an emergency or fuel irresponsible consumption.

That’s according to an in-depth study from LendingTree, which looked at anonymized data from customers in 2018. The study is packed with lots of great insights about consumer debt, including a breakdown of the reasons for taking out personal loans by credit score and across states. Researchers were able to show, for example, that people with low credit scores frequently use personal loans to cover everyday expenses. On the other hand, people with high credit scores tend to leverage personal loans for home improvements.

• The rate at which Americans are using personal loans is increasing, totaling some $125 billion in outstanding balances.
• The two most common reasons for taking out a personal loan is to consolidate debt and refinance credit card balances, symptoms of the larger problem of indebtedness in America.

• Lots of people say they use personal loans for “other” reasons, suggesting they are alternatives to payday and car title loans.

The trends discussed in the LendingTree analysis are immediately clear in our visual. The vast majority of borrowers are using personal loans to consolidate debt and refinance credit cards, combining for a total of 61% for all personal loans. It’s easy to understand why. It would take most people over a year to repay credit card debt. Combining multiple debts with varying interest rates into one payment with a fixed rate makes sense.

But here’s the scary thing about our visualization. The third leading reason provided for taking out a loan is “other,” a vague category (14.6%) that could include many different things. The researchers at LendingTree suspect these loans are meant to cover everyday expenses and emergencies. That means people are turning to personal loans as a stopgap measure to avoid falling into poverty.

In fact, the figures only represent a percentage breakdown of the reasons applicants provide when taking out a loan from LendingTree. They represent only a partial view of the entire personal loan market. Our visualization also says nothing about the size of the loans. People don’t frequently take out personal loans for home improvements, but when they do, they probably take on much larger overall debt loads than those who use the money for a vacation.

Most importantly, LendingTree acknowledges that people with low credit scores often use personal loans instead of payday and car title loans. Consumers are no doubt looking for products with the most favorable terms, including the lowest interest rate and flexible repayment terms. If you’re going to take out a loan, it always pays to shop around.

Indeed, there’s a larger and deeper problem with consumer behavior when unsecured loans cannibalize other types of financially unhealthy debt. It begs the question, how long are current trends sustainable?

Special Thanks to our Friends at BadCredit.org for this article's data pitch.