How Do Personal Loans Work?

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Taking out a personal loan could be a good option if you need to pay medical bills, consolidate debt, or cover another expense. But before you borrow, it’s important to understand how personal loans work and how to find the right one for your needs.

Here’s what you should know about how personal loans work (and how to get one):

• How personal loans work
• Types of personal loans
• How to apply for a personal loan
• What can you use a personal loan for?

How personal loans work

A personal loan is a type of installment loan offered by a few types of financial institutions, such as online lenders, banks, and credit unions. You’ll pay this loan back in equal installments with interest over a period of time.

Most personal loans are unsecured, which means you don’t have to worry about collateral. Instead, your credit, income, and other factors will determine if you qualify and what your interest rate will be.

Before you take out a personal loan, here are some important points to consider:

• Will you qualify? Each lender has its own set of requirements to qualify for a personal loan. However, lenders typically look for borrowers who have a steady income and good credit history (or who have a cosigner who meets these conditions).
• What rates can you expect? Terms and rates vary by lender and what you’re planning on using your personal loan for. To get a good interest rate, you’ll typically need good to excellent credit — in general, the higher your credit score, the better your rate will be. Keep in mind that with Credible, you can compare your prequalified rates from multiple lenders to find the right loan for you.
• Are there fees? Some lenders charge fees on personal loans, such as origination fees or late fees. Make sure to do your research so you know exactly how much the loan will cost you. Also note that if you take out a personal loan with one of Credible’s partner lenders, you won’t have to worry about prepayment penalties.
• How long will it take to get funds? The time to fund for a personal loan is usually about one week — though some lenders will fund loans as soon as the same or next business day after approval.

Learn More: What Is a Personal Loan?

Types of personal loans

While most personal loans are unsecured, there are also some lenders that offer secured personal loans. Here’s how both types of personal loans work:

• Secured personal loans: This kind of personal loan requires the borrower to provide collateral, such as a car or jewelry. Because there’s less risk for the lender, secured loans sometimes have lower interest rates compared to unsecured loans. You might also have an easier time qualifying for this type of loan if you have poor or fair credit. Just keep in mind that if you can’t keep up with your payments, you risk losing your collateral.
• Unsecured personal loans: Unlike secured loans, unsecured loans don’t require collateral. Because these loans are riskier for lenders, they tend to come with higher interest rates as well as more stringent credit requirements. However, while missing payments will damage your credit, you won’t be in danger of losing your property.

Ultimately, the right choice between a secured vs. an unsecured personal loan will depend on your individual circumstances. For example, if you have poor credit, it could be easier to get approved for a secured loan.

But if you have good credit, then it could be better to take out an unsecured loan that doesn’t require you to provide collateral.

How to apply for a personal loan

If you’re ready to get a personal loan, follow these four steps:

1. Check your credit. When you apply for a loan, the lender will perform a hard credit check to determine your creditworthiness — so it’s a good idea to check your credit beforehand to see where you stand. You can use a site like AnnualCreditReport.com to review your credit reports for free. If you find any errors, dispute them with the appropriate credit bureaus to potentially boost your credit score.
2. Compare lenders and pick a loan option. Be sure to shop around and compare as many lenders as you can to find the right loan for your situation. Consider not only interest rates but also repayment terms, any fees charged by the lender, and eligibility requirements. After you’ve done your research, pick the loan option that best suits your needs.
3. Complete the application. Once you’ve chosen a lender, you’ll need to fill out a full application and submit any required documentation — such as tax returns or pay stubs.
4. Get your funds. If you’re approved, the lender will have you sign for the loan so the funds can be released to you. You can typically expect to get your funds within one week or so — but you might get your money as soon as the same or next business day with some lenders.

Before you apply for a loan, remember to consider as many lenders as you can to find the right loan for you. Credible makes this easy — you can compare your prequalified rates from multiple lenders in two minutes.

Lender	Fixed rates	Loan amounts	Min. credit score	Loan terms (years)
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	9.95% - 35.99% APR	$2,000 to $35,000**	550	2, 3, 4, 5*
Fixed APR: 9.95% - 35.99% APR Variable APR: N/A Min. credit score: 550 Loan amount: $2,000 to $35,000** Loan terms (years): 2, 3, 4, 5* Time to fund: As soon as the next business day (if approved by 4:30 p.m. CT on a weekday) Fees: Origination fee Discounts: Autopay Eligibility: Available in all states except CO, IA, HI, VT, NV NY, WV Customer service: Phone, email Soft credit check: Yes Loan servicer: Avant Loan Uses: Debt consolidation, emergency expense, life event, home improvement, and other purposes Min. Income: $1,200 monthly
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.99% - 15.19% APR	$10,000 to $50,000	700	3, 4, 5, 6
Fixed APR: 7.99% - 15.19% APR Variable APR: N/A Min. credit score: 700 Loan amount: $10,000 to $50,000 Loan terms (years): 3 to 6 Time to fund: Next business day Fees: No prepayment penalty Discounts: None Eligibility: Available in all 50 states Customer service: Phone Soft credit check: Yes Min. Income: Does not disclose Loan Uses: Debt consolidation, home improvement, self-employment, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.99% - 35.99% APR	$5,000 to $35,000	600	2, 3, 4, 5
Fixed APR: 7.99% - 35.99% APR Variable APR: N/A Min. credit score: 600 Loan amount: $2,000 to $50,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as 1 to 3 business days after successful verification Fees: Origination fee Discounts: None Eligibility: Available in all states except DC, IA, VT, and WV Customer service: Phone Soft credit check: Yes Loan servicer: Best Egg and Blue Ridge Bank Min. Income: None Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	5.99% - 24.99% APR	$2,500 to $35,000	660	3, 4, 5, 6, 7
Fixed APR: 5.99% - 24.99% APR Min. credit score: 660 Loan amount: $2,500 to $35,000 Loan terms (years): 3, 4, 5, 6, 7 Time to fund: As soon as the next business day after acceptance Fees: Late fee Discounts: None Eligibility:  Available in all 50 states Customer service: Phone Soft credit check: Yes Loan Uses: Auto repair, credit card refinancing, debt consolidation, home remodel or repair, major purchase, medical expenses, taxes, vacation, and wedding
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.99% - 29.99% APR	$10,000 to $50,000	Not disclosed by lender	2, 3, 4, 5
Fixed APR: 7.99% - 29.99% APR Min. credit score: Does not disclose Loan amount: $10,000 to $50,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as 2 business days Fees: Origination fee Discounts: No Eligibility: Available in all states except CO, CT, HI, KS, NH, NY, ND, OR, VT, WV, WI, and WY Customer service: Phone Soft credit check: Yes Min. Income: None Loan Uses: Debt consolidation, home improvement, wedding, travel, medical expenses, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.99% - 29.99% APR	$5,000 to $40,000	600	2, 3, 4, 5
Fixed APR: 7.99% - 29.99% APR Min. credit score: 600 Loan amount: $5,000 to $40,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as 2 to 5 business days after verification Fees: Origination fee Discounts: None Eligibility: Available in all states except MA and NV Customer service: Phone, email, chat Soft credit check: Yes Min. Income: None Loan Uses: Debt consolidation and credit card consolidation only
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	8.3% - 36.0% APR	$1,000 to $40,000	600	3, 5
Fixed APR: 8.3% - 36.0% APR Min. credit score: 600 Loan amount: $1,000 to $40,000 Loan terms (years): 3, 5 Time to fund: Usually takes about 2 days† Fees: Origination fee Discounts: None Eligibility: Available in all 50 states Customer service: Phone, email Soft credit check: Yes Loan servicer: LendingClub Bank Min. Income: None Loan Uses: Debt consolidation, paying off credit cards, home improvement, pool loans, vacations, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.99% - 35.99% APR	$2,000 to $36,500	580	2, 3, 4, 5, 6
Fixed APR: 7.99% - 35.99% APR Min. credit score: 580 Loan amount: $2,000 to $36,500 Loan terms (years): 2, 3, 4, 5, 6 Time to fund: As soon as the next business day Fees: Origination fee Discounts: Autopay Eligibility: Available in all states except NV and WV Customer service: Phone, email Soft credit check: Yes Min. Income: $20,000 Loan Uses: Home improvement, consolidate debt, credit card refinancing, relocate, make a large purchase, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	5.24% - 19.99% APR	$5,000 to $100,000	660	2, 3, 4, 5, 6, 7 (up to 12 years for home improvement loans)
Fixed APR: 5.24% - 19.99% APR Min. credit score: 660 Loan amount: $5,000 to $100,000 Loan terms (years): 2, 3, 4, 5, 6, 7* Time to fund: As soon as the same business day Fees: None Discounts: Autopay Eligibility: Available in all states except RI and VT Customer service: Phone, email Soft credit check: No Loan servicer: LightStream Min. Income: Does not disclose Loan Uses: Credit card refinancing, debt consolidation, home improvement, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	6.99% - 24.99% APR1	$3,500 to $40,0002	660 (TransUnion FICO®️ Score 9)	3, 4, 5, 6, 7
Fixed APR: 6.99% - 24.99% APR1 Min. credit score: 660 (TransUnion FICO®️ Score 9) Loan amount: $3,500 to $40,0002 Loan terms (years): 3, 4, 5, 6 Time to fund: Many Marcus customers receive funds in as little as three days Fees: None Discounts: Autopay Eligibility: Available in all 50 states Customer service: Phone Soft credit check: Yes Loan servicer: Goldman Sachs Min. Income: $30,000 Loan Uses: Credit card refinancing, debt consolidation, home improvement, major purchase, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	18.0% - 35.99% APR	$1,500 to $20,000	None	2, 3, 4, 5
Fixed APR: 18.0% - 35.99% APR Min. credit score: None Loan amount: $1,500 to $20,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as the same day, but usually requires a visit to a branch office Fees: Origination fee Discounts: None Eligibility: Must have photo I.D. issued by U.S. federal, state or local government Customer service: Phone, email Soft credit check: Yes Min. Income: Does not disclose
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.74% - 17.99% APR	$600 to $50,000 (depending on loan term)	660	1, 2, 3, 4, 5
Fixed APR: 7.74% - 17.99% APR Min. credit score: 660 Loan amount: $600 to $50,000* Loan terms (years): 1, 2, 3, 4, 5 Time to fund: 2 to 4 business days after verification Fees: None Discounts: None Eligibility: Does not disclose Customer service: Phone, email Soft credit check: No Min. Income: Does not disclose Loan Uses: Debt consolidation, home improvement, transportation, medical, dental, life events
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	6.99% - 35.99% APR	$2,000 to $50,000	640	2, 3, 4, 5
Fixed APR: 6.99% - 35.99% APR Min. credit score: 640 Loan amount: $2,000 to $50,000 Loan terms (years): 2, 3, 4, 5 Time to fund: As soon as one business day Fees: Origination fee Discounts: None Eligibility: Available in all states except IA, ND, WV Customer service: Phone, email Soft credit check: Yes Min. Income: None Loan Uses: Debt consolidation, home improvement, vehicles, small business, new baby expenses, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.99% - 23.43% APR10	$5,000 to $100,000	Does not disclose	2, 3, 4, 5, 6, 7
Fixed APR: 7.99% - 23.43% APR10 Min. credit score: Does not disclose Loan amount: $5,000 to $100,000 Loan terms (years): 2, 3, 4, 5, 6, 7 Time to fund: 3 business days Fees: None Discounts: Autopay Eligibility: Available in all states except MS Customer service: Phone, email Soft credit check: Yes Min. Income: Does not disclose Loan Uses: Solely for personal, family, or household uses
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	11.69% - 35.93% APR7	$1,000 to $50,000	560	3 to 5 years 8
Fixed APR: 11.69% - 35.93% APR7 Min. credit score: 560 Loan amount: $1,000 to $50,000 Loan terms: 3 to 5 years 8 Time to fund: Within one day, once approved9 Loan types: Debt consolidation, pay off credit cards, home improvements, unexpected expenses, home and auto repairs, weddings, and other major purchases Fees: Origination fee Discounts: Autopay Eligibility: A U.S. citizen or permanent resident; not available in DC, SC, WV Customer service: Phone, email Soft credit check: Yes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	7.46% - 35.97% APR	$1,000 to $50,000	560	2, 3, 5, 6
Fixed APR: 7.46% - 35.97% APR Min. credit score: 560 Loan amount: $1,000 to $50,000* Loan terms (years): 2, 3, 5, 6 Time to fund: Within a day of clearing necessary verifications Fees: Origination fee Discounts: Autopay Eligibility: Available in all states except West Virginia Customer service: Email Soft credit check: Yes Min. Income: Does not disclose Loan Uses: Debt consolidation, credit card refinancing, home improvement, and other purposes
Credible Rating Credible lender ratings are evaluated by our editorial team with the help of our loan operations team. The rating criteria for lenders encompass 78 data points spanning interest rates, loan terms, eligibility requirement transparency, repayment options, fees, discounts, customer service, cosigner options, and more. Read our full methodology. View details	5.4% - 35.99% APR4	$1,000 to $50,0005	580	3 to 5 years4
Fixed APR: 5.4% - 35.99% APR4 Min. credit score: 580 Loan amount: $1,000 to $50,0005 Loan terms (years): 3 to 5 years4 Time to fund: As fast as 1 business day6 Fees: Origination fee Discounts: None Eligibility: Available in all 50 states Customer service: Phone, email Soft credit check: Yes Min. Income: $12,000 Loan Uses: Payoff credit cards, consolidate debt, take a course or bootcamp, relocate, make a large purchase, and other purposes
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All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | 10SoFi Disclosures | Read more about Rates and Terms

Check Out: Best Personal Loan Lenders

Will applying for a personal loan impact my credit score?

When you apply for a personal loan, the lender will perform a hard credit check to determine your creditworthiness. This could lead to a slight drop in your credit score — but this effect is usually only temporary, and your score will likely bounce back within a few months.

Additionally, getting a personal loan might actually help your credit in the long run. For example, if you make all of your payments on time or are able to diversify your credit mix with a personal loan, you could see an improvement in your score. Ultimately, the benefits to your credit from a personal loan could end up far outweighing any initially negative impact.

What can you use a personal loan for?

You can typically use a personal loan for almost any personal expense — though there are some lenders that restrict the use of their loans for certain purposes.

Here are a few reasons why you might get a personal loan:

• Debt consolidation: You can use a personal loan to pay off multiple bills at once (like high-interest credit card debt) and then pay your personal loan back in installments every month. This process is known as debt consolidation.
• Home improvement projects: Whether you have huge renovations or minor repairs, a personal loan could help you get the exact funds you need to cover the costs.
• Major life events: Getting married, expanding your family, or laying a loved one to rest can be expensive. A personal loan could be a good option to pay for these life events, whether expected or unexpected.

If a personal loan seems like the best fit for your needs, remember to take the time to shop around and consider as many lenders as possible before you borrow. This way, you can find the right loan for your situation.

This is easy with Credible: You can compare your prequalified rates from multiple lenders in two minutes — without affecting your credit.

Keep Reading: HELOC vs. Home Equity Loan: How to Decide

Ashley Harrison contributed to the reporting of this article.

About the author

Dori Zinn

Dori Zinn is a student loan authority and a contributor to Credible. Her work has appeared in Huffington Post, Bankate, Inc, Quartz, and more.

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