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A personal loan is a set amount of money you borrow from a lender that you agree to pay back with interest, over a certain time (typically two to five years).
Personal loans are usually unsecured which means you don’t have to offer anything as collateral (like your house or car). And once your loan is paid in full, the account is closed (also known as an installment loan).
In this post:
- Personal loan uses
- Personal loan rates and terms
- Personal loan alternatives
- How to qualify for a personal loan
Personal loan uses
While you can use a personal loan for whatever you’d like, there are a few different types of loans and ways you can put your loan to use, including:
- Credit card consolidation: Pay off high-interest credit card debt with a debt consolidation loan.
- Medical expenses: Pay off what your insurance couldn’t cover.
- Home improvements: Use a personal loan to make updates or renovations.
- Other major expenses: Pay for a major expense without tapping into credit cards.
Learn More: Debt Consolidation vs. Personal Loan: What Is the Difference?
Personal loan rates and terms
Personal loan lenders use your credit score, income, and other personal financial information to determine if you’re eligible and what your interest rate will be.
There are also different terms and rates depending on what your personal loan will be used for. For example, you may be able to get a longer term loan with a lower rate for home improvements compared to paying off credit card debt.
For personal loans, you may have to choose between a fixed or variable interest rate:
- Fixed interest rate: You’ll have the same interest rate and monthly payments for the duration of the loan.
- Variable interest rate: Your rate could fluctuate depending on market conditions. Sometimes it’s lower than a fixed rate, but has the chance to rise, meaning you could end up paying more.
Learn More: Companies Offering the Best Personal Loans
Personal loan alternatives
Depending on what you need the loan for, and the loan amount, you might consider these personal loan alternatives:
- HELOC or home equity loan: For home renovations, you may also want to look into a home equity loan or line of credit. You might get a lower interest rate compared to personal loans since your home is used as collateral to “secure” the loan.
- Credit card: For small expenses, you can try using credit cards. These are good if you have a good cash-back option and plan to pay off the balance at the end of the month. But credit cards have higher interest rates that affect any remaining balance at the end of each month.
Learn More: Home Equity Loan vs. HELOC
How to qualify for a personal loan
There are a couple of main things you’ll need to qualify for a personal loan:
- Good credit history: Lenders will check your credit report before you get a loan. Some lenders give out loan offers if you have a not-so-great credit score, but the higher your score, the more likely you are to qualify for a loan. Because it’s an unsecured loan, your credit score is one of the most important factors in determining if you qualify (and what your interest rate will be).
- Steady income: Lenders are checking out your income and employment to make sure that if you take out a loan, you can afford to pay it back on time every month.
The bottom line
Each lender has their own requirements for who qualifies for a personal loan. So, make sure to compare multiple lenders to find the one with the best repayment terms for your situation.
Credible allows you to fill out a single form in two minutes and compare prequalified rates from multiple online lenders who offer personal loans to help you find your lowest rate — with a soft credit check that won’t affect your credit score.
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You can also check out our personal loan calculator and estimate how much you’ll have to pay back to ensure you’re financially prepared to take on the responsibility of a loan.