Personal Loans

A personal loan is a type of installment loan that you can use to cover almost any personal expense. Personal loans are available from a variety of financial institutions, including banks, credit unions, and online lenders.

Most personal loans are unsecured, which means you don’t have to worry about providing collateral (like your home or car). If you’re approved for an unsecured loan, you'll make monthly payments to pay it back in full, plus interest. The loan terms and interest rate can vary based on the lender and your credit.

Some lenders offer secured personal loans that require collateral. Because there’s less risk to the lender, you might get a lower interest rate on a secured loan compared to an unsecured loan. But if you can’t keep up with your payments, you risk losing your collateral.

You can use personal loans for almost any expense — though some lenders restrict the use of their loans for certain purposes. Their varied uses make personal loans much more flexible than an auto loan, home loan, or student loan, which can only be used for one specific purpose.

Here are some of the expenses that you might be able to get a personal loan for:

• Debt consolidation

• Home improvement projects

• Major purchases

• Weddings or travel

• Adoption

• Fertility treatments

• Medical treatments

While minimum credit score requirements vary by lender, you’ll generally need a good to excellent credit score to qualify for the best interest rates on a personal loan. In general, the better your credit score, the more competitive interest rates you’ll likely get.

Here are the credit score ranges you can typically expect to see, as well as how they can affect the interest rates you’re offered:

• Poor (639 or lower):

  A score in this range could make it much harder to get approved for a personal loan on your own. You might need to consider applying with a cosigner to qualify. If you’re approved, you’ll likely receive a high interest rate.

• Fair (640 to 699):

  While several lenders offer fair credit personal loans, you can generally expect to pay a higher interest rate. Having a cosigner might get you a better rate, even if you don’t need one to qualify.

• Good (700 to 749):

  A good score increases your chances of qualifying with several personal loan lenders. You’re also more likely to receive more favorable rates. While you likely won’t need a cosigner to get approved for a loan, having one might help you get the best interest rates.

• Excellent (750 and above):

  Scores above 750 will qualify you for the vast majority of personal loans, as well as help you get the lowest interest rates advertised by lenders.

While eligibility criteria can vary by lender, here are a few personal loan requirements you’ll likely need to meet:

• Good credit:

  Most lenders prefer to work with borrowers who have good to excellent credit. While several lenders also offer personal loans for poor or fair credit, remember that these loans will generally come with higher interest rates compared to good credit loans.

• Verifiable income:

  When lenders review your loan application, they want to see that you can afford to repay your loan. Some lenders have a minimum required income, while others don’t — but in either case, you’ll likely have to provide proof of income.

• Low debt-to-income ratio:

  Your debt-to-income (DTI) ratio is the amount you owe in monthly debt payments compared to your income. To qualify for a personal loan, you’ll typically need a DTI ratio of 40% or less — though some lenders might require a lower ratio than this.

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

1. Research and compare lenders.

   Be sure to compare as many lenders as possible to find the right loan for your needs. Consider not only interest rates but also repayment terms, any fees the lender charges, and eligibility requirements.

2. Pick a loan option.

   After comparing lenders, choose 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 money can be released to you. The time to fund a personal loan is usually about one week — though some lenders will fund loans for applicants as soon as the same or next business day after approval.

Personal loans offer several benefits, including:

• Fixed interest rates:

  Personal loans usually have fixed interest rates, which means your rate and payment will remain the same over the life of the loan. These rates also tend to be lower compared to other options like credit cards.

• Can be used to consolidate debt:

  You can take out a personal loan to consolidate multiple kinds of debt, such as credit cards or other loans. Depending on your credit, you might get a lower interest rate than you’ve been currently paying, which could potentially help you pay off your debt faster.

• Cover large expenses:

  If you need to pay for a large expense — such as home improvements, medical bills, or a wedding — a personal loan could be an option to get the cash you need.

• Generally unsecured:

  Most personal loans are unsecured, which means you don’t have to worry about collateral. However, because unsecured loans present more of a risk to the lender, an unsecured personal loan could be harder to qualify for compared to a secured loan.

The time it takes to approve a personal loan depends on the lender. For example, with an online lender, you can often fill out an application and receive an approval decision within minutes, while a traditional bank might require you to visit a branch to apply.

The time to fund a personal loan also varies by lender. Here are the funding times you can typically expect:

• Online lenders:

  Less than 5 business days

• Banks:

  1 to 7 business days

• Credit unions:

  1 to 7 business days

Some lenders offer faster personal loans with shorter funding times. For example, several of Credible’s partner lenders provide next- or even same-day personal loans.

If you want to get your funds as soon as possible while avoiding any delays, be sure to:

• Fill out the application as accurately as you can.
• Submit any required documentation in a timely manner.

When you apply for a personal loan, you’ll need to be prepared to provide documentation. The actual loan documents the lender requests might vary depending on your situation but could include:

• Identification

  , such as a government-issued ID

• Social Security card

  to confirm your identity

• Tax returns or pay stubs

  to ensure that you can afford repayment

• Bank statements

  to verify that you earn sufficient income

Minimum and maximum loan amounts vary by lender. With Credible’s partner lenders, you can take out a $600 personal loan up to a $100,000 personal loan.

Keep in mind that your credit will also likely affect how much you can borrow. You’ll typically need good to excellent credit to qualify for the highest loan amounts. If you have poor credit, you might need a cosigner to get approved for a larger loan.

Read More: $15,000 Personal Loans: Everything You Need to Know

Some lenders charge an origination fee on personal loans, which can include application costs, underwriting, funding, and other associated administrative services. The amount of this fee can vary by lender, but the average origination fee is typically between 1% and 8% of your loan amount.

Also note that an origination fee is usually deducted from your loan funds before you get them. For example, if you borrow $15,000 with a 5% origination fee, $750 would go to the fee, and you’d receive $14,250.

If the lender you choose charges an origination fee, be sure to consider it when choosing your loan amount — otherwise, you could end up with less money than you need.

If you need a personal loan, you have a lot of great lenders to choose from. Our partner lenders offer loans for a variety of needs:

• Avant: Best for poor credit
• Axos: Best for excellent credit
• Best Egg: Best for good credit
• BHG Money: Large loan amounts
• Discover: Best for long repayment terms
• Happy Money: Best for consolidating credit card debt
• LendingClub: Best for borrowers who need a cosigner
• LightStream: Best for large loan amounts
• OneMain Financial: Best for below-average credit
• PenFed: Best for small loan amounts
• Reach Financial: Best for fast loan funding
• SoFi: Best for borrower perks
• Universal Credit: Best for building credit
• Upgrade: Best for fast loan funding
• Upstart: Best for little to no credit history
• Zable: Best for personal line of credit

Your loan repayment term refers to the amount of time you’ll be making monthly payments until you’ve repaid the loan in full (your loan agreement will outline your repayment term). Personal loan repayment terms typically range from one to seven years, depending on the lender.

The repayment term you choose can affect how much you’ll pay for your loan. For example, if you opt for a long-term personal loan, you’ll likely have a lower monthly payment — but you’ll pay more in interest over the life of the loan. In general, it’s a good idea to choose a loan with the shortest term that you can afford to save as much on interest as possible.

Yes, several lenders offer personal loans for bad credit — for example, you might be able to get a personal loan with a 600 credit score or lower from certain lenders. But keep in mind that these loans generally come with higher interest rates compared to good credit loans.

If you have bad credit and are struggling to get approved, consider applying with a cosigner. Not all personal loan lenders allow cosigners on personal loans, but some do. Having a cosigner with good credit could also help you qualify for a lower interest rate than you’d get on your own.

Another option is working to improve your credit so you can qualify more easily in the future — as well as get approved for more favorable rates and terms. Here are a few potential ways to do this:

• Make on-time payments on all your bills.

  Your payment history is the biggest factor that makes up your credit score. Paying all your bills on time can help you build a positive payment history, which can improve your credit score.

• Pay down your credit card balances.

  Your credit utilization ratio refers to how much you owe on revolving credit accounts — like credit cards — compared to your available credit limits. This ratio is also a big factor in determining your credit score, so if you can pay down your balances, you might see your score go up.

• Take out a credit-builder loan.

  This type of loan is specifically designed to help borrowers build credit by building a positive payment history over a period of time. But unlike other loans, the payments you make on credit-builder loans are put into a dedicated savings account, and the money is returned to you at the end of your repayment term — minus any interest or fees.

In general, shopping around and comparing your options from multiple lenders likely won’t hurt your credit — for example, you can see your prequalified rates from Credible’s partner lenders with no effect on your credit score.

But when you officially apply for a personal loan, the lender will perform a hard credit check, which could cause a slight dip in your credit score. But this drop is usually only temporary, and your score will likely bounce back within a few months.

Additionally, a personal loan might actually have a positive effect on your credit score in several ways. For example, if you make on-time payments over the life of your loan or are able to diversify your credit mix by adding a personal loan, you could see a boost in your score.

Ultimately, the benefits of a personal loan to your credit could far outweigh any initial negative effects.

You can use both personal loans and credit cards to cover a variety of expenses. But it's important to keep their differences in mind as you compare personal loans versus credit cards.

Personal loans

A personal loan is a kind of installment loan where you receive the funds as a lump sum to use how you wish and then pay off your balance in monthly installments over a period of time.

You might want to consider a personal loan if you:

• Want a lower interest rate:

  Personal loans tend to have lower interest rates than credit cards, which means you likely won’t pay as much interest in comparison.

• Want fixed monthly payments:

  Personal loans typically have fixed interest rates, which means you can count on your payment staying the same from month to month.

• Need a longer repayment period:

  You could have one to seven years to pay off a personal loan, depending on the lender. Just keep in mind that choosing a longer term means you’ll pay more in interest over time.

Credit cards

Unlike a personal loan, a credit card is a type of revolving credit that gives you access to a credit line that you can repeatedly draw on and pay off.

A credit card might be a good choice if you:

• Can take advantage of a 0% APR offer:

  Some credit cards come with a 0% APR introductory offer — which means you can avoid paying interest if you repay your balance before this period ends. But if you can’t pay off the balance in time, you could be stuck with some hefty interest charges.

• Are only making a small purchase:

  Because personal loans typically have lower interest rates than credit cards, they’re usually a better option for large expenses. But if you only need to cover a small purchase and can pay off the balance quickly to minimize or avoid interest charges, then a credit card might be a good choice.

• Want rewards or perks:

  Depending on the card you choose, you might have access to rewards or perks, such as cash back or travel points. Just be sure you’re not only using the card for these benefits, as it could lead you more deeply into debt.

Read more: Pay Off Credit Card Debt ASAP With a Personal Loan

A personal loan is a type of loan that you can use for nearly any purchase. The main perk of personal loans is that they’re unsecured. If you default on the loan, you don’t risk losing collateral.

You can also use a personal line of credit for any purchase, but a line of credit is often secured by an asset, such as your home (this can help you qualify for a better interest rate). Defaulting on a line of credit can result in losing your collateral. The benefit of a line of credit is you don’t have to use the full borrowing amount available to you. You’ll only pay interest on the amount you borrow, unlike a personal loan that gives you a lump sum up front.

In some cases, taking out a personal loan could help you build credit. For example, you could see an improvement in your credit if you:

• Make all your payments on time.

  Your payment history is a major component of your credit score — so if you pay your loan on time and avoid missing payments, you could see a boost in your score.

• Diversify your credit mix.

  Another factor that makes up your credit score is how many types of credit you have — including revolving and installment accounts — and how well you manage them. If taking out a personal loan further diversifies your credit mix, your credit score could improve.

The annual percentage rate (APR) is what you’ll pay to borrow money. It includes not only your interest rate but any fees the lender charges, such as origination fees.

You’ll come across two types of APRs:

• A fixed APR stays the same throughout the life of the loan.

  This means your monthly payment and payoff date won’t ever change.

• A variable APR can fluctuate according to market trends.

  While a variable APR often starts out lower than a fixed APR, it could increase in the future — which would also cause your monthly payments to rise.