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A personal loan is money borrowed from a bank, credit union or online lender that you pay back in fixed monthly payments, or installments, typically over two to seven years. Lender rates can range from 6% to 36% APR.
Most personal loans are “unsecured” — not backed by collateral. A secured loan backed by something you own is typically cheaper, but you can lose the asset if you default. You usually can use the money for any reason.
» MORE: 6 ways to use a personal loan
Unless you can qualify for a 0% intro period credit card, rates on personal loans are typically cheaper than those on credit cards, and the limits on how much you can borrow are usually higher. If you have high balances on multiple high-interest credit cards, a debt consolidation loan can roll your debts into one payment at a lower rate.
Lenders make their decisions based on factors including credit score, credit report and debt-to-income ratio. Not surprisingly, consumers with excellent credit receive the lowest rates, but some lenders offer loans to customers with scores 600 or lower. Consumers who don’t qualify for unsecured loans may be offered secured or co-signed loans.
You should compare rates from multiple lenders before choosing. The loan with the lowest APR is the least expensive — and therefore, usually the best choice.
Most lenders allow you to see estimated rates without affecting your credit score. Some loan marketplaces allow you to easily compare several offers at once. If you qualify, you may receive your money as soon as the next day.