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Personal Loans Guide: What You Need To Know About Personal Loans

A personal loan can be used for a wide range of purposes and repaid over a number of years.

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By Jessica Martel

Written by

Jessica Martel

Writer

Jessica Martel is a professional researcher, freelance writer, and mother of two rambunctious little boys. She specializes in the areas of personal finance, financial literacy, and women and money.

Edited by Meredith Mangan

Written by

Meredith Mangan

Senior Editor

Meredith Mangan is Credible's Senior Editor for Personal Loans. Since 2011, she’s helped steer content creation in the areas of mortgages and loans, insurance, credit cards, and investing for major finance verticals, including Investopedia, Money Crashers, and The Balance.

Updated February 21, 2024

Editorial disclosure: Our goal is to give you the tools and confidence you need to improve your finances.

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Looking for a way to fund a kitchen renovation, cover an emergency expense, or pay off your credit cards? Personal loans provide a flexible and versatile way to borrow money that can be used for a wide range of purposes and repaid over a number of years.

If you’re considering a personal loan but aren’t sure where to start, let this article get you acquainted with the process. Learn what a personal loan is, how much they can cost, how to apply for one, and how to improve your chances of getting approved and getting a low rate.

What is a personal loan?

A personal loan is money you borrow at an agreed-upon interest rate, receive in a lump sum upfront, and pay back in installments over a defined period of time, usually years.

While you can use a personal loan for many different purposes, common uses include home renovations, medical bills, and debt consolidation. In fact, there are few loan purposes that lenders won’t approve, which makes flexibility a key benefit to personal loans.

Since personal loans are typically unsecured — meaning you aren’t required to pledge collateral to get a personal loan — your credit score, income, and existing debt are the main factors lenders consider when determining the interest rate and fees they’ll charge, and when approving your application.

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Personal loan features

Here are some common features of personal loans:

  • Loan amount: Typically available from less than $1,000 to $50,000, though some lenders may offer $100,000 personal loans or $200,000 personal loans to highly qualified borrowers.
  • Repayment term: Typically available from 1 year to 7 years, but some lenders offer terms up to 12 years for specific purposes like buying a boat or home improvement.
  • Time to fund: Within 1 to 3 business days after loan approval, but some lenders can fund the loan the same day you apply.
  • APR: 6% to 36%, depending on your credit, income, and current debt load. A loan’s annual percentage rate (APR) indicates the yearly cost to borrow money, and accounts for both the loan’s interest rate and any upfront fees, like an origination fee.
  • Origination fee: 0% to 12%, depending on the lender and your credit profile. Some lenders charge an upfront fee that is deducted from the loan amount. Though it’s frequently referred to as an origination fee, it may also be called an administrative fee.
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Good to know

The higher your credit score, the more likely you are to qualify for a low-interest-rate personal loan.

Types of personal loans

Most personal loans are unsecured and have a fixed interest rate, but some lenders offer secured personal loans and personal loans with a variable interest rate. Here are the differences:

Secured vs. unsecured personal loan

A secured personal loan requires some form of collateral, such as a savings account or your vehicle, while an unsecured loan does not. As a result, a secured personal loan can help you get a lower interest rate or higher loan amount, especially if you have a low credit score. By putting up collateral, you lower the risk for the lender. However, if you default on the loan, you could lose your collateral.

Learn More: Secured vs. Unsecured Personal Loans

Fixed vs. variable rate

Most personal loans have a fixed rate, which means your rate and monthly payment amount won’t fluctuate if current interest rates change. With a variable-rate loan, your interest rate can change throughout the term of the loan if interest rates rise or fall. This means your installment payments could change from month to month. If interest rates are low and continue to fall, a variable rate can result in lower payments. However, if interest rates rise, you risk paying more.

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How to qualify for a personal loan

Most lenders review your credit score, credit history, debt-to-income ratio (DTI), and income. While it’s possible to get a personal loan with bad credit, you’ll generally need a good or excellent credit score to qualify for loans with the most favorable rates.

Lenders look at your FICO credit score to help determine your eligibility for a loan as well as your rate and fees.

FICO credit score range
Type of credit
800 and up
Exceptional
740 to 799
Very good
670 to 739
Good
580 to 669
Fair
Below 580
Poor

Before applying for a loan, review the lender's eligibility criteria — specifically its minimum credit score and minimum income requirements. Knowing this will help you avoid lenders that are unlikely to approve your application.

To improve your chances of qualifying for a personal loan, consider the following tips:

  • Know your credit score: Before applying for a loan, review your credit report and credit score. This can help you identify any errors that could negatively impact your score. To get a free copy of your credit report, visit AnnualCreditReport.com. Your credit report doesn’t include your score, but you can find your credit score via any number of credit apps. Your current bank or credit card company may have one available free of charge.
  • Grow your credit score: If you want more loan options and to qualify for the lowest rates, focus on increasing your credit score. Make your debt payments on time every month, keep your credit utilization at 30% or less, and avoid applying for new credit unless you really need it.
  • Reduce debt: If you have a high DTI, work on paying off your debt. Start by creating or updating your budget, cutting your spending, or bringing in more income with side work.
  • Prequalify first: You can use a personal loans marketplace like Credible or a lender’s website to prequalify for a personal loan. The prequalification process is like a streamlined application. You provide basic information, like your income, loan purpose, and Social Security number, and can usually find out in minutes whether lenders think they’ll approve your loan application and the rate and terms they may offer you. Prequalification won’t hurt your credit, but once you formally apply, the lender will conduct a hard credit pull which could ding your score by a few points temporarily.

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Personal loan example

If you’re interested in estimating how much it will cost to take on a personal loan, you will need to know your interest rate, loan amount, upfront fees, and loan term.

For example, a loan of $20,000 with a five-year repayment term and a 20% interest rate would cost as follows:

  • Total loan payment: $31,793
  • Total interest: $11,793
  • Monthly payment: $530
  • Upfront fees: $0

You can use Credible’s personal loan calculator to estimate your payments for a personal loan as well as the overall cost.

How to compare personal loans

Before committing to a personal loan, prequalify with multiple lenders to compare potential offers, and consider the following loan features:

  1. APRs: The lowest APR indicates the loan with the lowest cost.
  2. Fees: Though accounted for in the APR, it’s helpful to know whether the loan you’re interested in charges an origination fee. Other fees not reflected in the APR include late payment fees and insufficient funds fees.
  3. Repayment terms: Choose a loan with a term that works best for you. For instance, if you expect to take a pay cut or lose a household income in five years, you may not want to commit to loan payments during that time.
  4. Loan amount: Generally, you should choose the loan amount you need and no more. Except in the case of home improvement loans, where you may want to build in a buffer for unexpected expenses.
  5. Funding time: If you need a personal loan fast, choose a lender that offers same- or next-day funding.
  6. Cosigner option: Do you need help qualifying for a loan? If so, you may want to choose a lender that offers loans with a cosigner.
  7. Secured loan option: A secured loan can help lower your rate or get you approved if you’re struggling. Choose a lender that offers secured loans if you don’t have a cosigner or you don't want a loan with a cosigner.
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4.24.2

Credible rating

Fixed (APR)

7.49% - 25.49%

Loan Amounts

$5000 to $100000

Min. Credit Score

700

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on Credible’s website

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3.93.9

Credible rating

Fixed (APR)

7.80% - 35.99%

Loan Amounts

$1000 to $50000

Min. Credit Score

620

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on Credible’s website

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4.44.4

Credible rating

Fixed (APR)

-

Loan Amounts

$2500 to $40000

Min. Credit Score

660

Check Rates

on Credible’s website

View Details

4.64.6

Credible rating

Fixed (APR)

8.49% - 17.99%

Loan Amounts

$600 to $50000

Min. Credit Score

760

Check Rates

on Credible’s website

View Details

4.54.5

Credible rating

Fixed (APR)

8.49% - 35.99%

Loan Amounts

$1000 to $50000

Min. Credit Score

600

Check Rates

on Credible’s website

View Details

4.94.9

Credible rating

Fixed (APR)

8.99% - 29.99%

Loan Amounts

$5000 to $100000

Min. Credit Score

Does not disclose

Check Rates

on Credible’s website

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44

Credible rating

Fixed (APR)

8.99% - 35.99%

Loan Amounts

$2000 to $50000

Min. Credit Score

600

Check Rates

on Credible’s website

View Details

44

Credible rating

Fixed (APR)

9.57% - 35.99%

Loan Amounts

$1000 to $40000

Min. Credit Score

660

Check Rates

on Credible’s website

View Details

3.93.9

Credible rating

Fixed (APR)

9.95% - 35.99%

Loan Amounts

$2000 to $35000

Min. Credit Score

550

Check Rates

on Credible’s website

View Details

4.34.3

Credible rating

Fixed (APR)

11.69% - 35.99%

Loan Amounts

$1000 to $50000

Min. Credit Score

560

Check Rates

on Credible’s website

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3.93.9

Credible rating

Fixed (APR)

11.72% - 17.99%

Loan Amounts

$3000 to $40000

Min. Credit Score

640

Check Rates

on Credible’s website

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44

Credible rating

Fixed (APR)

-

Loan Amounts

$20000 to $200000

Min. Credit Score

660

Check Rates

on Credible’s website

View Details

3.73.7

Credible rating

Fixed (APR)

14.30% - 35.99%

Loan Amounts

$3500 to $40000

Min. Credit Score

640

Check Rates

on Credible’s website

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3.93.9

Credible rating

Fixed (APR)

18.00% - 35.99%

Loan Amounts

$1500 to $20000

Min. Credit Score

540

Check Rates

on Credible’s website

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All APRs reflect autopay and loyalty discounts where available | LightStream disclosure | SoFi Disclosures | Read more about Rates and Terms

How to apply for a personal loan

Now that you’ve done your research and selected a loan provider, it’s time to apply. If you’re using an online lender, you can generally complete the entire loan application online. With a traditional bank or credit union, you may have to complete part of the application in person. To ensure this process goes as quickly as possible, have all of your documentation ready to go. Some of the documents the lender might request include:

  • Proof of identification: Government-issued ID such as your driver’s license, birth certificate, or passport.
  • Proof of income: Such as pay stubs, bank statements, tax slips. You may also need your employer’s contact information.
  • Proof of residence: A mortgage statement, lease, or utility bill.

Once you complete your application, wait for the lender’s decision. With an online lender, this can happen quickly, as in a matter of minutes or hours. A traditional lender like a bank or credit union can take up to a week. If you miss something on your application or the lender requires more information, the process can take even longer.

If you’re approved, you’ll need to sign the loan agreement and then wait to receive your funds. If your application is not approved, you may need to wait another 30 days to reapply.

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Personal loans FAQ

How can I get a personal loan with bad credit?

To increase your chances of getting a personal loan with bad credit, consider a secured personal loan or look for lenders that accept a cosigner.

Where can I get a personal loan?

Personal loans are available from a variety of financial institutions, including online lenders, banks, and credit unions.

How long does it take to get a personal loan?

The time it takes to get a personal loan can vary based on the type of lender you choose. You may be able to get a personal loan funded with an online lender the same day you apply. A traditional lender like a bank or credit union, on the other hand, could take up to a week or longer.

How much of a personal loan can I get?

How much you’re eligible to borrow with a personal loan will vary between lenders and depends on your credit score, income, and current debt. A good to excellent credit score will help you qualify for the highest loan amounts at the lowest rates.

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Meet the expert:
Jessica Martel

Jessica Martel is a professional researcher, freelance writer, and mother of two rambunctious little boys. She specializes in the areas of personal finance, financial literacy, and women and money.