What Is a Personal Loan?
Personal loans provide you with a lump sum of cash that you can use for almost any purpose. These loans are typically unsecured, meaning you don’t need collateral to get one. Instead, lenders will review your income, debts, and credit profile to determine whether they can offer you a loan.
Terms on personal loans can vary widely. Depending on the lender and your financial circumstances, you can get a loan for as little as $1,000 or as much as $100,000. Interest rates range from 6% to 35.99%. Loan terms vary but are usually between 12 and 60 months.
Unlike other types of loans, like mortgages or business loans, personal loans offer the flexibility of using funds on almost anything. That includes:
- Home improvement or repairs
- Medical debt
- Sudden expenses, like funerals or fires
- Debt consolidation
- Small business costs
- Major life events
You can get the funds from personal loans faster than other types of loans. Lenders typically deposit funds within a few days of approval. Once the money arrives in your bank account, you’ll start repaying within 30 days. You’ll have a set monthly bill for the term of the loan, though you may pay it off faster if you choose to make additional payments.
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Types of Personal Loans
There are several types of personal loans to choose from:
- Unsecured: An unsecured loan doesn’t have any collateral to back it, which usually means it has a higher interest rate compared to a secured loan. It can also be more difficult to get an unsecured loan as lenders require better financial circumstances to qualify.
- Secured: This type of loan has collateral, like a car or other valuable item, to back it. If you fail to repay the loan, your lender will use the collateral to recoup their lost funds.
- Cosigned: If you’re struggling to get a personal loan due to poor credit or finances, a cosigner could help. The cosigner, which could be a family member or friend, agrees to repay the loan if you cannot.
- Variable and fixed rate loans: All loans have either fixed or variable interest rates. With a fixed rate, you pay the same interest rate over the life of the loan. With variable rates, your interest rate fluctuates with the market.
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When to Get a Personal Loan
Since personal loans are typically unsecured, they can sometimes be more expensive than other types of loans. That said, there are times when getting a personal loan can make the most sense.
It’s best to get this type of loan when it is the least expensive form of financing. For example, let’s say you want to open a small business and get a few quotes for a business loan. If those loans have higher interest rates than a personal loan, then it makes more sense to choose the personal loan.
You’ll also need to make sure you can afford the monthly payments. That means the payment fits into your budget without having to cut down on your essential spending, like groceries or utilities.
Additionally, it can make sense to get a personal loan when it will improve your financial circumstances. For example, using a personal loan to improve your house can add value to your home and allow you to make more when you sell it.
Personal loans can also help you consolidate debt, which could greatly improve your finances. Credit card debt can have high interest rates – up to 36%. If you carry a balance, that debt multiplies and can be impossible to pay off. Getting a personal loan allows you to pay it all off immediately and have a new set monthly payment that fits into your budget.
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How to Get the Best Personal Loans
Generally speaking, the best personal loans are those that have the lowest APRs, minimal fees, and monthly payments you can comfortably afford. Since most personal loans are unsecured, your loan terms depend largely on your personal finances.
To get the best personal loan, you’ll need a strong credit score. You can boost your credit by reviewing your history. Request your credit report from the three major credit reporting companies: TransUnion, Equifax, and Experian. Then, you can review your reports for any errors that could be lowering your credit score.
At the same time, try to pay down any outstanding debts if you can, like credit cards. This will improve your DTI (debt-to-income) ratio, which makes you a less risky investment for personal loan lenders.
On the other hand, increasing your income can also help improve your DTI ratio. If you’re able to, you might consider picking up more hours at work, looking for a part-time job, starting a side hustle, or asking for a raise at work.
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How to Apply for a Personal Loan
Applying for a personal loan is easy, though it’s important to spend time doing your research. There are just a few steps to complete.
1. Shop Around
Loan terms can vary greatly from lender to lender, so it’s important to compare your options before applying. You can use the table above to compare the pros and cons of the top lenders.
Once you have 3 to 5 lenders in mind, prequalify with each. This step allows you to get personalized rate estimates and terms so you can get a good idea of your loan options. Many lenders allow you to prequalify with just a soft credit pull, meaning you won’t affect your credit score.
Compare your prequalified offers to determine which is the best fit for you. Generally speaking, the offer with the lowest APR and monthly payments is usually best as it will save you the most money and fit into your budget best.
2. Submit an Application
Once you’ve selected a lender, submit a full application. Applying for a loan requires you to provide documentation about your identity and income, like W2s and pay stubs. As long as you have the documents ready, it should take under 30 minutes to complete this step.
3. Receive Your Funds and Start Repayment
Most lenders take two to five days to approve your loan and deliver your funds. That said, some of the best personal loan lenders can approve you and deliver your money in just one working day.
You’ll typically start repaying the loan within a month of receiving the funds. Many lenders allow you to set up autopay so you never miss a bill. Be sure to make full, on-time payments each month to protect your credit score and meet the terms of your loan.
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Choosing the Best Lender
The cost of your loan will be the most important factor of your personal loan. However, it’s also key to consider your lender. You’ll have to interact with it for months or years as you repay the loan, so be sure to compare options.
To get the best personal loans, consider doing the following:
- Shop around and research: Don’t just take the first personal loan you come across. Compare rates, terms, fees, repayment options, and customer service channels to determine which is best for you.
- Check for customer reviews: What are other people saying about your chosen lender? If it has a bad reputation, you might want to avoid it. Scan third-party sites, like Google and TrustPilot, for unbiased reviews.
- Check for hidden costs: A lender may charge you origination, processing, late, and early repayment fees. Read the fine print to make sure you understand all the costs associated with your loan. The best personal loans have minimal fees. Your lender will be able to explain each fee to you, so don’t be afraid to ask.
Disclosures:
LoansUnder36 disclosure
*lender form varies
Credible disclosure
Personal Loans Rate and Terms Disclosure: “Rates for personal loans provided by lenders on the Credible platform range between 6.94% - 35.99%. APR with terms from 12 to 120 months. Rates presented include lender discounts for enrolling in autopay and loyalty programs, where applicable. Actual rates may be different from the rates advertised and/or shown and will be based on the lender’s eligibility criteria, which include factors such as credit score, loan amount, loan term, credit usage and history, and vary based on loan purpose. The lowest rates available typically require excellent credit, and for some lenders, may be reserved for specific loan purposes and/or shorter loan terms. The origination fee charged by the lenders on our platform ranges from 0% to 12%. Each lender has their own qualification criteria with respect to their autopay and loyalty discounts (e.g., some lenders require the borrower to elect autopay prior to loan funding in order to qualify for the autopay discount). All rates are determined by the lender and must be agreed upon between the borrower and the borrower’s chosen lender. For a loan of $10,000 with a three year repayment period, an interest rate of 7.99%, a $350 origination fee and an APR of 10.43%, the borrower will receive $9,650 at the time of loan funding and will make 36 monthly payments of $313.32. Assuming all on-time payments, and full performance of all terms and conditions of the loan contract and any discount programs enrolled in included in the APR/interest rate throughout the life of the loan, the borrower will pay a total of $11,279.43. As of March 3, 2022, none of the lenders on our platform require a down payment nor do they charge any prepayment penalties.”
*Credible is fully assured they can provide you with the best personal loan rate available. If you find a better rate elsewhere and take that loan, they will give you $200. See full terms and conditions.
Empower Thrive disclosure
*Not everyone will qualify for a Cash Advance offer. Offer amounts range from $10 - $300. As of 3/31/2024, the average offer amount is $145. Instant delivery fees may apply. See Terms.
Current Cash Advance disclosure
¹Paycheck Advance is for eligible customers only. Your actual available Paycheck Advance amount will be displayed to you in the mobile app and may change from time to time. Conditions and eligibility may vary and are subject to change at any time, at the sole discretion of Finco Advance LLC, which offers this optional feature. Finco Advance LLC is a financial technology company, not a bank. Refer to Paycheck Advance Terms and Conditions.
² Expedited disbursement of your Paycheck Advance is an optional feature that is subject to an Instant Access Fee and may not be available to all users. Expedited disbursements may take up to an hour. For more information, please refer to Paycheck Advance Terms and Conditions.
EarnIn disclosure
EarnIn is not a bank. Access limits are based on your earnings and risk factors. Available in select states.
Terms and restrictions apply. Visit EarnIn.com for full details
Expedited transfers available for a fee. Visit Earnin.com for full details.
Upgrade disclosure
Personal loans made through Upgrade feature Annual Percentage Rates (APRs) of 7.99%-35.99%. All personal loans have
a 1.85% to 9.99% origination fee, which is deducted from the loan proceeds. Lowest rates require Autopay and paying off
a portion of existing debt directly. Loans feature repayment terms of 24 to 84 months. For example, if you receive a
$10,000 loan with a 36-month term and a 17.59% APR (which includes a 13.94% yearly interest rate and a 5% one-time
origination fee), you would receive $9,500 in your account and would have a required monthly payment of $341.48. Over
the life of the loan, your payments would total $12,293.46. The APR on your loan may be higher or lower and your loan
offers may not have multiple term lengths available. Actual rate depends on credit score, credit usage history, loan term,
and other factors. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. There is
no fee or penalty for repaying a loan early. Personal loans issued by Upgrade’s bank partners. Information on Upgrade’s
bank partners can be found at Bank Partners - Upgrade.
Reprise Financial disclosure
Offers through Reprise Financial are not guaranteed. Loan approval and final loan terms, including loan amounts, interest rates and annual percentage rates (“APRs”), depend on the applicant’s ability to meet credit standards, including but not limited to, credit history, income, debt payment obligations and other factors such as the availability of collateral. Not all applicants will qualify for the largest loan amounts, lowest rates, or most favorable loan terms, which may require a first lien on a motor vehicle with acceptable value, titled in the applicant’s name with valid insurance. Please note: Motorcycles cannot be used to secure a loan. The closing process through Reprise requires a compatible mobile or computer device on which an applicant can access email and electronic documents. Reprise Financial provides access to unsecured and secured personal loans ranging from $2,500 to $25,000. In some cases, the minimum loan amount may vary due to state requirements. Borrowers in Georgia are subject to a minimum loan amount of $3,500 and borrowers in Ohio are subject to a minimum loan amount of $5,500. Reprise Financial branded credit products are originated by WebBank