Consolidate your debt or pay for major purchases, home improvements and more
When you need cash to consolidate your credit card debt, make an expensive purchase like a swimming pool or an engagement ring, or to pay for a large medical bill, where do you turn? The answer for many people is to take out a personal loan.
Personal loans are a type of unsecured loan. Unlike a car or home loan, which can be used only for a narrowly defined purpose, personal loans can be used for a variety of purposes. Common reasons for taking out a personal loan include debt consolidation, life events such as weddings or funerals, medical expenses and home improvement projects.
Typically from $1,000 to $50,000
12 to 60 months
Depends on debt, income, credit score and loan terms
Varies by lender: 1 to 14 days
Personal loans typically range from $1,000 to $50,000. The exact amount you can borrow depends on a range of factors, including your credit score and income, and the lender’s specific lending criteria.
If you’re wondering how to start looking for a personal loan, there are a variety of online resources at your disposal. Research to find a lender that offers personal loans in the amount you’re seeking, while letting you compare loan offers based on interest rates, loan terms and minimum loan amounts, to help you find the loan that works best for you.
Personal loan terms range from 12 months to 60 months. You may be able to pay off the loan before the end of its term, but some lenders will charge you a prepayment penalty for doing so.
Ask your lender how a longer or shorter term can change your personal loan's interest rate and your monthly payment.
Pick the monthly payment that you can afford without stretching the repayment term unnecessarily.
If you’re looking for ways to get cash quickly, there are various loan products. In addition to personal loans, here is a list of common loan types that people use when they need cash.
When you take out a payday loan, you typically write the lender a check for the loan amount, plus the amount of any fees the lender charges. When the loan comes due, the lender will cash the check. The fees charged by payday lenders are typically equivalent to a very large Annual Percentage Rate (APR), which can add up to as much as 400 percent.
Title loans are secured by the title of an asset such as a car, boat or mobile home. Title loans are attractive to borrowers with bad credit, because their credit scores are typically not a factor in whether they are approved for loans. But title loans can be especially risky, because if you default on the loan, you will lose whatever asset is securing it, such as your car, boat or mobile home.
While exploring different loan options, you may have seen the terms “signature loan,” “character loan,” or “good faith loan.” In fact, all of these are different names for personal loans that are unsecured and not backed by collateral. Instead, they are secured in “good faith,” based only on the borrower’s “signature” or “character.” Interest rates on unsecured loans tend to be higher than rates for secured loans. This is because the lack of collateral makes unsecured loans riskier to the lender.
Are you trying to fund your small business? Microloans are loans for small amounts — for example, the U.S. Small Business Administration’s (SBA) microloan program offers loans as high as $50,000, and disburses an average loan amount of $13,000. In addition to the SBA, microloans are offered by many nonprofit organizations. Microloans are often targeted to small-business owners, and some microlenders offer additional support to business owners, such as hosting workshops on business development.
People take out personal loans for a variety of reasons. Common uses for personal loans include:
If you have debts with high interest rates from several different sources, consolidating them into one debt with a lower interest rate can save you money.
Personal loans can help people cope when life throws a curveball, such as medical expenses, essential repairs or overdue utility bills.
Personal loans can fill in the gaps for education expenses not covered by student loans.
A personal loan is one way to pay for unexpected medical expenses without breaking the bank.
Life events such as weddings, funerals or adoptions can be expensive. Personal loans are one way to fund such events.
If your home is in dire need of repair, but you don’t have the cash to fix it up, a personal loan may help.
The interest rate you pay on your personal loan depends on a variety of factors.
Your credit score is one of the major factors affecting the interest rate on your loan. Higher credit scores tend to command lower interest rates, while a lower score will leave you with higher interest rates. Before you start applying for loans, it’s a good idea to obtain a copy of your credit report, and to check your credit score. Depending on your score, it may be worthwhile to work on improving your credit before you apply for loans.
Generally speaking, the shorter the loan term, the lower the interest rate. The downside to a shorter term is that your monthly payment will be higher. If you opt for a longer-term loan to keep your monthly payment lower, however, expect to pay more money over the life of the loan because of the higher interest rate.
The ratio of all the debt payments you must make each month, compared to your total monthly income — known as your debt-to-income ratio — is another factor lenders look at when considering giving you a loan. Your debt-to-income ratio helps lenders predict whether you’re able to pay back a loan. Lenders assume that if you have more money available than what you’re putting toward debts, the more likely you will be able to repay the loan.
In addition to a personal loan, you may be considering a credit card for your borrowing needs. Although both options potentially could work for your needs, there are some major differences between personal loans and credit cards:
Personal loans are installment loans, meaning the borrower receives a lump sum upfront, which is then paid back over a set amount of time in a set number of scheduled payments. Credit cards are a type of revolving credit, meaning the lender sets a maximum credit limit that the borrower can use as much or as little of depending on their needs. When the borrower pays off their balance, the available credit can be reused as long as the account remains active.
Some personal loans and all credit cards are unsecured debt, and therefore, carry higher interest rates than secured loans like a mortgage or a car loan. Credit cards typically have higher interest rates than personal loans, however. If a credit card’s balance is repaid before the grace period — typically within 21 to 27 days — the balance does not accrue interest. It’s a great way to enjoy the convenience of credit cards without the interest cost. If you intend to make a large purchase on a credit card and pay it off over time, however, expect to pay a fairly significant amount of interest.
Credit cards have the potential to affect your credit score adversely because your credit utilization is one of the major factors used to determine your score. For example, let’s say you want to make a minor kitchen remodeling project that costs $6,000. If you put the full price of the project on a credit card with a credit limit of $6,500, you will utilize almost all of your available credit, which will likely harm your score. In this case, it makes more sense to take out a personal loan because installment loans are not typically considered when calculating your credit-utilization ratio.