Some consumers are shying away from plastic and instead turning to personal loans and lines of credit to gain more control over their financial life -- perhaps using them to pay down credit card debt, pay their tax bills or finance a trip down the aisle.

At the beginning of each year, "we see demand increase" for the products, says Todd Denbo, a Wells Fargo senior vice president within the personal credit management group. "Consumers start the year fresh with their personal finances in mind."

Wells Fargo's Debt Pay Down Solution is particularly popular among consumers who want to consolidate their credit card debt into a fixed loan, which runs for a fixed amount of time at a fixed interest rate, Denbo says.

Demand for personal loans at Wells Fargo "has been on an upward slope since the recession really started," he says.

How personal loans work Personal loans and lines of credit are unsecured, so there's no collateral such as a house or car required for approval, and in most cases they can be used for any purpose the borrower desires.

With a personal loan, a consumer borrows a set amount of money for a certain amount of time at a set interest rate and pays a fixed monthly payment.

A personal line of credit is similar to a home equity line of credit, and borrowers can tap into it as needed. The payment will vary based on the amount owed; the annual percentage rate may also vary with the borrower's credit rating.

The rate a consumer pays varies based on credit history and credit score, and may also be influenced by the borrower's relationship with a particular financial institution or purpose for using the money. Your income and assets may also be looked at.

Total value of market unknown The total value of personal loans and lines of credit is hard to come by. Personal loans are made by a host of institutions, large and small, and the Federal Reserve's statistics lump them in with other types of lending, making it tough to measure separately.Along with banks and credit unions, social lending is gaining ground. With social or peer-to-peer lending, there's no traditional financial institution involved. Instead, individual borrowers are connected to individual investors through sites such as Lending Club and Prosper.com .

At credit unions, unsecured loans are broken down between credit cards and "all other unsecured loans," with personal loans accounting for the vast majority of those. In National Credit Union Association data, the total value of "all other unsecured loans" was $25.58 billion in December 2011. That's a slight uptick from $25.47 billion in December 2010.

Originally posted here:
Personal loans on the rise, but are they right for you?