SOCKS5, the protocol, is not encrypted. Data is sent in clear text across the wire and can be intercepted at any time.
Of course, the data is just TCP and UDP packets, so you could be running a HTTPS connection over it (or DOH for DNS) but from the ISP's point of view SOCKS5 or no SOCKS5 they can see just as much of your traffic.
SOCKS5 to an external server is not solving encryption, you need a VPN for that; at most, it can solve anonymity (by hiding your IP address, presuming you trust the SOCKS5 server operator).
In my case, I'm using SOCKS5 to another machine in my LAN which in turn connects to an external VPN provider over an encrypted channel (OpenVPN or WireGuard).
That is true, however for "personal use" one of the popular uses of a socks proxy is to create a local socks server using ssh. Works on all big desktop platforms (on windows puttys plink.exe works fine, not sure if the inbuilt client has it but I'd guess it does too) and often with already installed tools and only need a server with SSH, and is encrypted.
And that is far more common than having a VPN, and again, might not even need to install anything on the client. So you could quickly configure a friends laptop to ssh+socks inside your own network to stream from a local jellyfin server, or whatever. Or bypass language restrictions on regional services when you are abroad on vacation etc. (all are trivial to do with a VPN of course, but this is quite handy when you normally don't have a need for a VPN and/or just want something quick with tools and accounts you know at the back of your mind).
