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Should I Get a Personal Loan?
Consider a personal loan if you’re consolidating debt or need to fund a large expense like a home remodel.
Jackie Veling Lead Writer | Buy now, pay later loans, debt consolidation, personal loans
Jackie Veling covers personal loans for NerdWallet. Her work has been featured in The Associated Press, MarketWatch, MSN, Nasdaq.com, the Los Angeles Times and Yahoo Finance. Her work has also been cited by the Harvard Kennedy School. Prior to that, she ran a freelance writing and editing business, where she partnered with a wide range of clients, including U.S. Bank and Under Armour. She graduated from Indiana University with a bachelor’s degree in journalism.
Ronita Choudhuri-Wade Lead Writer | Personal finance, Personal loans
Ronita Choudhuri-Wade covers personal loans for NerdWallet. Before joining NerdWallet, Ronita was a freelance writer for the fintech company Wise (formerly TransferWise) on global money transfers and banking internationally. She was previously a senior internal wholesaler at MainStay Investments, holding her Series 6, 65, 63 and 7 licenses. Ronita graduated from New York University and has a master’s degree in globalization and development from the University of Manchester in the United Kingdom. Ronita currently lives in Tulsa, Oklahoma.
Kim Lowe is a lead assigning editor on NerdWallet's loans team. She covers consumer borrowing, including topics like personal loans, buy now, pay later and cash advance apps. She joined NerdWallet in 2016 after 15 years at MSN.com, where she held various content roles including editor-in-chief of the health and food sections. Kim started her career as a writer for print and web publications that covered the mortgage, supermarket and restaurant industries. Kim earned a bachelor's degree in journalism from the University of Iowa and a Master of Business Administration from the University of Washington. She works from her home near Portland, Oregon.
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A personal loan is a way to consolidate high-interest debt or finance a large expense like a home improvement project. Interest rates on personal loans can be lower than on some credit cards, especially if you have good credit.
But financial experts typically advise against using a personal loan for that beach vacation or the latest flatscreen TV. For discretionary purchases like these, paying with cheaper options like a 0%-interest credit card or money you’ve saved up is best.
Personal loans are a type of credit that consumers can use for almost any reason. Unlike mortgages or auto loans, personal loans don’t need to be earmarked for a specific purpose.
Personal loans are installment loans; if approved, you’ll receive a lump sum of cash that you repay in fixed amounts every month until the loan term expires.
To determine your eligibility, a lender will check your credit and income to gauge your ability to repay the loan. Applicants with high credit scores, strong income and low debt usually receive the lowest rates.
You can comfortably afford the monthly payments for the loan term.
Here are common reasons to take out a personal loan:
Consolidate high-interest debt
Getting a personal loan is one way to consolidate high-interest debt, like credit card debt, into a single payment. Ideally, the personal loan has a lower interest rate than your existing debt, allowing you to pay it off faster.
For example, a borrower with good credit has two credit cards with individual balances of $10,000 and each card has an interest rate of 24.99%. Every month they make $400 monthly payments toward each card. By rolling those debts into a single personal loan with an interest rate of 18% paid over three years, the borrower could save $2,770, according to NerdWallet’s debt consolidation calculator.
Home improvement
Using a personal loan for a home improvement project can make sense, especially if the project adds value to your home. You avoid racking up credit card debt or having to pledge your house as an asset, like with a home equity loan.
See if you pre-qualify for a personal loan – without affecting your credit score
Just answer a few questions to get personalized rate estimates from multiple lenders.
You have time to grow your savings and cover your expense in cash.
You can get a lower rate elsewhere.
You can’t afford the monthly payments for the loan term.
Here are situations where a personal loan may not make sense:
Discretionary spending
Personal loans are an expensive financing option for nonessential expenses, like an extravagant wedding or a dream vacation. Instead, start saving now for big-ticket items to avoid finance charges altogether.
Medical costs
Medical bills can often be paid through a lower-cost payment plan with a doctor or medical credit card rather than a personal loan. Consider a personal loan only if you can’t get better terms.
Emergency expenses
Rainy-day or emergency funds are often the best courses of action for emergency expenses. Personal loans may seem far cheaper and less risky than other sources like payday loans, but they can still involve high interest rates, especially for borrowers with poor credit.
Fixed monthly payments. Personal loans have a fixed rate and monthly payments for the loan term. This makes the payments easier to plan for in your monthly budget than credit card payments, which fluctuate. A personal loan also gives you a clear payoff date for the debt.
Loan amounts range from $1,000 to $100,000. Because personal loans can have a wide range of amounts, they can help you pay for a minor home repair or consolidate larger debts. However, loan amounts differ by lender and creditworthiness.
You can use it for nearly any purpose. Unlike mortgages and auto loans, which are used for specific purchases, personal loans can be used to pay for almost anything. Lenders will ask for your loan purpose on the application, but your reason is unlikely to disqualify you.
APRs can be lower than credit cards. Borrowers with good to excellent credit (score of 690 or higher) will likely get the lowest rates on personal loans, often much lower than credit cards.
Loans may come with an origination fee. Some lenders charge an origination fee, a percentage of your loan amount typically deducted before you get the funds.
There may be cheaper alternatives. If you have fair to bad credit (score of 689 or lower), qualifying for the lowest interest rates on a personal loan can be difficult. Consider alternatives like a 0% credit card, a family loan or equity financing for a home improvement project that can save you money on interest.
Increases your monthly debt obligation. A personal loan increases your debt-to-income ratio, which may make it difficult to qualify for other loans and credit cards during the loan term.
Check your credit score.Getting a personal loan starts with checking your credit score. Your credit score will help you determine which lenders you may qualify with. Review your credit report and fix any issues that may be hampering your score.
Pre-qualify. Determine how much you need to borrow and calculate estimated rates so you have all the information you need to pre-qualify. Pre-qualifying requires a soft credit check — which won’t impact your score — and allows you to review potential offers from lenders. Compare the potential rates and terms between online lenders, banks and credit unions.
Compare financing options. Next, consider other credit options like 0%-interest credit cards, secured loans or adding a co-signer. Before committing, read the fine print to see if there are any fees, and learn more about features the lender offers, like direct payment to creditors or flexible payment dates.
Submit your application. If you decide to move forward, gather the required documents so you are ready to apply for the loan formally.
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NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.
NerdWallet's ratings are determined by our editorial team. The scoring formula incorporates coverage options, customer experience, customizability, cost and more.