Who is a personal loan?

Loans can be obtained from online lenders, local banks and credit unions and the funds are provided in a lump sum. Once you receive the cash, you must make payments until the debt has been fully repaid.

One of the biggest benefits of personal loans versus credit cards is that they come with a fixed interest rate and repayment terms.

A personal loan is money you borrow from a bank or other financial institution with a set repayment period and consistent monthly payments. Most personal loans are unsecured, so you won’t have to put down collateral to borrow the money.

Loan amounts vary widely, from around $1,000 to $50,000 or more, and interest rates currently range from about 6 percent to 36 percent. Borrowers typically get between one and seven years to repay the money.

If you’re looking to get a personal loan, you’ll have to complete an application and wait for approval — a process that may take anywhere from a few hours to several days. Once you’re approved, the lender will disburse money into your bank account, and you use the funds for your intended purpose. You will also start to repay the money right away. Throughout the loan term, your lender will likely report your account activity to the credit bureaus. Making on-time payments can help you build a positive credit history.

Here’s an explanation of all the moving parts that make personal loans what they are.

Personal loans may come with a fixed rate, in which the APR stays constant over the life of the loan, or a variable rate, which can fluctuate over time. The APR includes the personal loan’s interest rate in addition to the lender’s fees for servicing the loan.

Lenders sometimes base variable rates on a well-known index rate, such as the prime rate. The prime rate is the interest rate at which banks and other financial institutions lend to one another.

Variable interest rates can be capped so they won’t rise above a certain amount — even if the index rate increases. However, most personal loans come with fixed APRs, which means that your monthly payments will be predictable.

Your APR is determined based on several factors, the most important being your credit score. If you have a good credit score, you may qualify for a lender’s lowest rates — the best rates typically go to people with credit scores above 700. Some of the additional factors that may impact the APR you’re offered include:

While most personal loans work similarly, there are differences among loan products and lenders. Here are the main types of personal loans you should be aware of.

One big benefit of personal loans is that you can use your loan proceeds however you want. This makes personal loans incredibly diverse and flexible. Here are some of the most common applications.

Debt consolidation loans are unsecured personal loans offered to consumers who need to consolidate high-interest credit card debt or debt from other loans. These loans tend to come with lower interest rates that can help consumers save money on interest or secure a lower monthly payment.

Consumers with a pricey event like a wedding, a honeymoon or a vacation often take out personal loans to fill the gaps in their budget. Once the event is over, they get the benefit of repaying their loan with fixed monthly payments and a fixed interest rate over time.

It’s common to take out personal loans for educational purchases, such as pursuing a workplace certification or attending a career-boosting seminar. That said, many lenders prohibit the use of personal loans to cover college tuition fees, which is something to keep in mind.

Besides investing in your education, you can also get a personal loan to pay for procedures that improve your self-image, such as dental implants or cosmetic surgery.

While home equity loans and home equity lines of credit (HELOCs) are popular with consumers who want to take on remodeling projects, these home improvement loans require you to put up your home as collateral. For this reason, many consumers turn to unsecured personal loans instead of home equity products.

With an unsecured personal loan, you can borrow the money you need for a project without putting your home on the line.

Personal loans also work well for emergencies, such as surprise medical bills, an urgent roof replacement or even funeral expenses. Since some personal loans let consumers apply online and receive funding within a few business days, they can provide exceptional peace of mind and financial support when an emergency strikes.

If you’re ready to apply for a personal loan, take these steps first:

Here are some common mistakes people make when taking out a personal loan — and how you can avoid them:

A personal loan may not be the best choice for everyone. Depending on your financial circumstances and how you plan to use the money, it may make more sense to investigate other lending options, including:

As a revolving line of credit, using a credit card allows you to repeatedly borrow funds as needed. However, credit cards have some downsides, including variable interest rates, annual fees and late fees.

A credit card is also not a good choice for major expenses, especially because you could accrue substantial interest if you don’t pay the balance in full at the end of each billing cycle.

The proceeds from a cash-out refinance can be used for nearly any purpose, including home remodeling, consolidating high-interest debt or any other financial need. A cash-out refinance replaces your existing home loan with a bigger mortgage and you receive the difference between the two mortgages in a lump sum payment.

This option can often be a less expensive way to access cash because refinance rates are typically lower than personal loans. Just be careful not to borrow more than you need.

A HELOC allows you to borrow only what you need when you need it. This approach to borrowing can be better for people who need access to cash on an ongoing basis. HELOCs often have interest rates that are lower than personal loans.

A home equity loan is a second mortgage that provides you with a lump sum of money. This type of loan allows you to borrow against the equity in your home, usually at a lower interest rate than other types of loans.

If you need to borrow money and prefer the stability of a fixed repayment schedule and fixed monthly payment, a personal loan could be exactly what you need. To get the best loan rates and terms, take steps to become an attractive borrower by improving your credit score and keeping other debts at a minimum.

It’s also important to shop around and compare personal loan rates with multiple lenders in the personal loan space, including companies that offer online loans.

A personal loan is an amount of money you can borrow to use for a variety of purposes. For instance, you may use a personal loan to consolidate debt, pay for home renovations, or plan a dream wedding. Personal loans can be offered by banks, credit unions, or online lenders. The money you borrow must be repaid over time, typically with interest. Some lenders may also charge fees for personal loans.

A personal loan allows you to borrow a lump sum of money to pay for a variety of expenses and then repay those funds in regular payments, or installments, over time. For example, you might use a personal loan to cover:

Personal loans are different from other installment loans—such as student loans, car loans, and mortgage loans—that are used to fund specific expenses like education, vehicles, or homes.

A personal loan is also different from a personal line of credit. A line of credit is not a lump sum amount but instead works like a credit card. You have a set credit line that you can spend money against. As you spend, your available credit is reduced. You can then increase available credit by making a payment toward your credit line.

With a personal loan, there’s typically a fixed end date by which the loan will be paid off. A personal line of credit, on the other hand, may remain open and available to you indefinitely as long as your account remains in good standing with your lender.

Personal loans may be secured or unsecured. A secured personal loan is one that requires some type of collateral as a condition of borrowing. For instance, you may secure a personal loan with cash assets, such as a savings account or certificate of deposit (CD), or with a physical asset, such as your car or boat. If you default on the loan, the lender could keep your collateral to satisfy the debt.

An unsecured personal loan requires no collateral to borrow money. Banks, credit unions, and online lenders can offer both secured and unsecured personal loans to qualified borrowers. Banks generally consider the latter to be riskier than the former because there’s no collateral to collect. That can mean paying a higher interest rate for a personal loan.

To get a personal loan, you need to apply to a lender. Again, this can be a bank, credit union, or online personal loan lender.

Generally, you would first complete an application. The lender reviews it and decides whether to approve or deny it. If approved, you’ll be given the loan terms, which you can accept or reject. If you agree to them, the next step is finalizing your loan paperwork.

When that’s done, the lender will fund the loan, which means paying you the proceeds. Depending on the lender, these may arrive through a direct deposit into your bank account or a check. After the loan is funded, you can use the money as you see fit. You then have to begin repaying the loan according to the terms established in your loan agreement.

When considering a personal loan, it’s helpful to understand how much it may cost. The annual percentage rate (APR) on a personal loan represents the annualized cost of repaying the loan based on the interest rate and fees. The APR and loan term can determine how much you pay in interest total over the life of the loan.

For example, assume you get a $10,000 personal loan with an APR of 7.5%. The loan has a repayment term of 24 months. Using those terms, your monthly payment would be $450 and the total interest paid over the life of the loan would be $799.90.

Now assume you borrow the same amount but with different loan terms. Instead of a two-year term, you have three years to repay the loan, and your interest rate is 6% instead of 7.5%. Using those terms, your monthly payment would drop to $304, but your total interest paid would increase to $951.90.

Comparing the numbers this way is important if you want to get the lowest monthly payment possible or pay the least amount of interest for a personal loan. Using a simple online personal loan calculator can help you determine what kind of payment amount and interest rate are the best fit for your budget.

The first place to look for personal loans may be your current bank or credit union. Your personal banker can advise you on what types of personal loans may be available and the borrowing options for which you’re most likely to qualify.

Personal loans can also be found online. Numerous lenders offer personal loans online. You can apply electronically, get a decision in minutes and, in some cases, get funding in as little as 24 to 48 hours after loan approval.

When comparing personal loans online or off, pay close attention to the details. Specifically, consider the following:

It’s also helpful to check the minimum requirements to qualify for a personal loan. Lenders can have different requirements when it comes to the credit score, income, and debt-to-income ratio that are acceptable to be approved for a personal loan. This can help you narrow down the loans that may best fit your credit and financial profile.

Description In finance, unsecured debt refers to any type of debt or general obligation that is not protected by a guarantor, or collateralized by a lien on specific assets of the borrower in the case of a bankruptcy or liquidation or failure to meet the terms for repayment. Wikipedia

Loans can be obtained from online lenders, local banks and credit unions and the funds are provided in a lump sum. Once you receive the cash, you must make payments until the debt has been fully repaid.

One of the biggest benefits of personal loans versus credit cards is that they come with a fixed interest rate and repayment terms.

A personal loan is money you borrow from a bank or other financial institution with a set repayment period and consistent monthly payments. Most personal loans are unsecured, so you won’t have to put down collateral to borrow the money.

Loan amounts vary widely, from around $1,000 to $50,000 or more, and interest rates currently range from about 6 percent to 36 percent. Borrowers typically get between one and seven years to repay the money.

If you’re looking to get a personal loan, you’ll have to complete an application and wait for approval — a process that may take anywhere from a few hours to several days. Once you’re approved, the lender will disburse money into your bank account, and you use the funds for your intended purpose. You will also start to repay the money right away. Throughout the loan term, your lender will likely report your account activity to the credit bureaus. Making on-time payments can help you build a positive credit history.

Here’s an explanation of all the moving parts that make personal loans what they are.

Personal loans may come with a fixed rate, in which the APR stays constant over the life of the loan, or a variable rate, which can fluctuate over time. The APR includes the personal loan’s interest rate in addition to the lender’s fees for servicing the loan.

Lenders sometimes base variable rates on a well-known index rate, such as the prime rate. The prime rate is the interest rate at which banks and other financial institutions lend to one another.

Variable interest rates can be capped so they won’t rise above a certain amount — even if the index rate increases. However, most personal loans come with fixed APRs, which means that your monthly payments will be predictable.

Your APR is determined based on several factors, the most important being your credit score. If you have a good credit score, you may qualify for a lender’s lowest rates — the best rates typically go to people with credit scores above 700. Some of the additional factors that may impact the APR you’re offered include:

While most personal loans work similarly, there are differences among loan products and lenders. Here are the main types of personal loans you should be aware of.

One big benefit of personal loans is that you can use your loan proceeds however you want. This makes personal loans incredibly diverse and flexible. Here are some of the most common applications.

Debt consolidation loans are unsecured personal loans offered to consumers who need to consolidate high-interest credit card debt or debt from other loans. These loans tend to come with lower interest rates that can help consumers save money on interest or secure a lower monthly payment.

Consumers with a pricey event like a wedding, a honeymoon or a vacation often take out personal loans to fill the gaps in their budget. Once the event is over, they get the benefit of repaying their loan with fixed monthly payments and a fixed interest rate over time.

It’s common to take out personal loans for educational purchases, such as pursuing a workplace certification or attending a career-boosting seminar. That said, many lenders prohibit the use of personal loans to cover college tuition fees, which is something to keep in mind.

Besides investing in your education, you can also get a personal loan to pay for procedures that improve your self-image, such as dental implants or cosmetic surgery.

While home equity loans and home equity lines of credit (HELOCs) are popular with consumers who want to take on remodeling projects, these home improvement loans require you to put up your home as collateral. For this reason, many consumers turn to unsecured personal loans instead of home equity products.

With an unsecured personal loan, you can borrow the money you need for a project without putting your home on the line.

Personal loans also work well for emergencies, such as surprise medical bills, an urgent roof replacement or even funeral expenses. Since some personal loans let consumers apply online and receive funding within a few business days, they can provide exceptional peace of mind and financial support when an emergency strikes.

If you’re ready to apply for a personal loan, take these steps first:

Here are some common mistakes people make when taking out a personal loan — and how you can avoid them:

A personal loan may not be the best choice for everyone. Depending on your financial circumstances and how you plan to use the money, it may make more sense to investigate other lending options, including:

As a revolving line of credit, using a credit card allows you to repeatedly borrow funds as needed. However, credit cards have some downsides, including variable interest rates, annual fees and late fees.

A credit card is also not a good choice for major expenses, especially because you could accrue substantial interest if you don’t pay the balance in full at the end of each billing cycle.

The proceeds from a cash-out refinance can be used for nearly any purpose, including home remodeling, consolidating high-interest debt or any other financial need. A cash-out refinance replaces your existing home loan with a bigger mortgage and you receive the difference between the two mortgages in a lump sum payment.

This option can often be a less expensive way to access cash because refinance rates are typically lower than personal loans. Just be careful not to borrow more than you need.

A HELOC allows you to borrow only what you need when you need it. This approach to borrowing can be better for people who need access to cash on an ongoing basis. HELOCs often have interest rates that are lower than personal loans.

A home equity loan is a second mortgage that provides you with a lump sum of money. This type of loan allows you to borrow against the equity in your home, usually at a lower interest rate than other types of loans.

If you need to borrow money and prefer the stability of a fixed repayment schedule and fixed monthly payment, a personal loan could be exactly what you need. To get the best loan rates and terms, take steps to become an attractive borrower by improving your credit score and keeping other debts at a minimum.

It’s also important to shop around and compare personal loan rates with multiple lenders in the personal loan space, including companies that offer online loans.

A personal loan is money borrowed from a bank, credit union or online lender that you pay back in fixed monthly payments or installments. Lenders typically offer loans from $1,000 to $50,000, with repayment terms of two to seven years.