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Personal loans are a popular way to get money to consolidate credit card debt, start a side business, or finance home improvements. In fact, you can use a personal loan to do just about anything. Personal loans are relatively easy to apply for compared to mortgages or auto loans, and approval is based on your credit history and income. Here is everything you need to know about personal loans.
A personal loan is a lump sum lent to you by a credit union, bank, or online lender. Then, it works by you paying back the loan -- plus interest fees -- in monthly installments over a predetermined period of time. Unlike other loans for a specific type of purchase, such as a home or car loan, personal loans can be used for almost any purpose.
For example, you can use a personal loan to:
You can get a personal loan through many financial institutions, including online-based and traditional (branch-based) lenders. If you want to see some of our favorites, check out our updated list of the best personal loans.
Get the best rates and terms to fit your needs. Here are a few loans we'd like to highlight, including our award winners.
While all personal loans are in the same general category, there are some sub-categories you should know:
A personal loan can impact your credit score in multiple ways. When you apply for the loan, the application will put a hard inquiry on your credit file. This lowers your credit score, but only by a small amount. For most consumers, the impact is less than five points.
The good news is that a personal loan can have a much greater positive impact on your credit score. If you make the loan payments on time, this will improve your payment history -- the most important factor in your credit score.
If the personal loan is used to consolidate credit card debt, it will help your credit score even more. For one thing, installment debt (loan debt) is generally considered more favorable than revolving debt (credit cards). Plus, your credit card utilization percentages will be much lower after the consolidation (you won't be very close to maxing out your credit cards). That can also provide a big boost to your score.
Before you shop around for a personal loan, there are a few things you should be familiar with in order to make the best decision for your financial situation.
Read through each lender's minimum credit score requirements to make sure you qualify before applying. Some lenders also have income requirements.
If your credit score or income is low, look into secured vs. unsecured loans. Most personal loans don't require collateral -- these are known as "unsecured" loans. This means the lender can't take your car or home if you can't pay the loan. But if your credit is poor, you might not qualify for an unsecured loan. In that case, you may have to offer collateral (such as money in a savings account or CD) to qualify for a loan.
How much you want to borrow and how long you want to take to pay it off -- the personal loan structure -- are two of the most important details you'll need to know before selecting a loan. Here are some things to keep in mind:
You can see how these three details impact your monthly payments using the loan calculator below.
Some loans charge fees beyond just the interest rate. Here are a couple you may see:
The interest rate you'll pay on your personal loan can vary based on a couple of factors, including your credit score and lender. Here's how to make sure you're getting the best rates.
Generally, you'll get a low interest rate if you have an excellent credit score.
If your credit score needs improvement, don't stress -- you can still get a personal loan for fair credit. These loans generally charge a higher interest rate, but the interest rate will still (usually) be lower than the interest rate on a credit card. There are also several ways to build credit fast, if you'd like to try increasing your score and improving your chances of landing a low interest rate.
It's not uncommon for a borrower to find loan offers with a difference of 8 percentage points or more on the interest rate, even when applying to the best personal lenders. This means that if you apply to a bunch of lenders, offers with APRs ranging from 8% to 16% wouldn't be unusual. What if you only apply to the 16% APR lender? You'll never know what interest rates are out there unless you apply to multiple lenders.
Most personal lenders allow you to get pre-approved, which includes checking your interest rates, in just a couple of minutes. An hour or so of shopping around for loans is easy and could save you hundreds (or even thousands) of dollars.
It can be tempting to select the longest loan repayment term possible to keep your monthly payments low. However, it's wise to consider repaying your loan in the shortest time period you can reasonably afford.
Let's say that you borrow $20,000 to fund home renovations at an 8% interest rate. Repaying the loan over a 48-month term would result in a $488.26 monthly payment, while a 72-month term would come with a $350.66 payment -- keeping an extra $137.60 in your wallet each month.
However, the longer term would result in you paying $5,248 in total interest, while the 48-month loan would have total interest charges of $3,436. By choosing to pay a little more each month, you'll save $1,812 in the long run.
Deciding if a personal loan is right for you
Qualifying for a personal loan
Finding the right personal loan
Applying for a personal loan
Paying off a personal loan
Reasons you can get a loan
Other resources
Looking for a personal loan but don’t know where to start? Our favorites offer quick approval and rock-bottom interest rates. Check out our list to find the best loan for you.
Our Loans Experts
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Please note that this calculator is not personalized financial advice and should not be considered or used as such. Nor are we promising that by use of this calculator, will you be able to save more money, preserve wealth, or otherwise.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent, a Motley Fool service, does not cover all offers on the market. The Ascent has a dedicated team of editors and analysts focused on personal finance, and they follow the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands.
Please note that this calculator is not personalized financial advice and should not be considered or used as such. Nor are we promising that by use of this calculator, will you be able to save more money, preserve wealth, or otherwise.
Citi Personal Loan disclaimer:
**Rates as of 05-31-2024. Your APR may be as low as 11.49% or as high as 20.49% for the term of your loan. The lowest rate quoted assumes excellent credit and a loan term of 24 or 36 months. Your APR will depend on a variety of factors including your creditworthiness, term of loan, and existing relationship with Citi. For example, if you borrow $10,000 for 36 months at 15.99% APR, to repay your loan you will have to make 36 monthly payments of approximately $351.52.
There is a 0.5% APR discount if you enroll in automatic payments at loan origination. Additionally, existing Citigold and Citi Priority customers will receive a 0.25% discount to the interest rate. If you are in default, your APR may increase by 2.00%. No down payment is required. Rates subject to change without notice.
You must be at least 18 years of age (21 years of age in Puerto Rico). Co-applicants are not permitted. Loan proceeds cannot be used for post-secondary educational or business purposes.
If you apply online, you must agree to receive the loan note and all other account disclosures provided at loan origination in an electronic format and provide your signature electronically.
Credit cards issued by Citibank, N.A. or its affiliates, as well as Checking Plus and Ready Credit accounts, are not eligible for debt consolidation, and Citibank will not issue payoff checks for these accounts. If you are unsure of the issuer on the account, please visit https://www.citi.com/affiliatesproducts for a list of Citi products and affiliates.
*Upstart Loan Disclaimer
The full range of available rates varies by state. The average 3-year loan offered across all lenders using the Upstart platform will have an APR of 21.97% and 36 monthly payments of $35 per $1,000 borrowed. For example, the total cost of a $10,000 loan would be $12,646 including a $626 origination fee. APR is calculated based on 3-year rates offered in the last 1 month. There is no down payment and no prepayment penalty. Your APR will be determined based on your credit, income, and certain other information provided in your loan application.
*SoFi Personal Loan Disclaimer
Fixed rates from 8.99% APR to 29.99% APR reflect the 0.25% autopay interest rate discount and a 0.25% direct deposit interest rate discount. SoFi rate ranges are current as of 02/06/2024 and are subject to change without notice. The average of SoFi Personal Loans funded in 2022 was around $30K. Not all applicants qualify for the lowest rate. Lowest rates reserved for the most creditworthy borrowers. Your actual rate will be within the range of rates listed and will depend on the term you select, evaluation of your creditworthiness, income, and a variety of other factors.
Loan amounts range from $5,000–$100,000. The APR is the cost of credit as a yearly rate and reflects both your interest rate and an origination fee of 0%-7%, which will be deducted from any loan proceeds you receive.
Autopay: The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Autopay is not required to receive a loan from SoFi.
Direct Deposit Discount: To be eligible to potentially receive an additional (0.25%) interest rate reduction for setting up direct deposit with a SoFi Checking and Savings account offered by SoFi Bank, N.A. or eligible cash management account offered by SoFi Securities, LLC (“Direct Deposit Account”), you must have an open Direct Deposit Account within 30 days of the funding of your Loan. Once eligible, you will receive this discount during periods in which you have enabled payroll direct deposits of at least $1,000/month to a Direct Deposit Account in accordance with SoFi’s reasonable procedures and requirements to be determined at SoFi’s sole discretion. This discount will be lost during periods in which SoFi determines you have turned off direct deposits to your Direct Deposit Account. You are not required to enroll in direct deposits to receive a Loan.
Impact to credit score: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.