What is a personal loan?
A personal loan is money borrowed from a bank, credit union or online lender that you pay back in fixed monthly payments, typically over two to five years. The annual percentage rates that lenders charge can range from about 6% to 36%.
Most personal loans are “unsecured” — not backed by collateral. A secured loan backed by a car or house is typically cheaper, but you can lose the asset if you default.
The loan with the lowest APR is the least expensive and therefore usually the best choice.
You usually can use the money for any reason. Common uses are consolidating debt, covering emergency medical expenses or starting a small business.
Unless you qualify for a zero-interest 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 personal loan can consolidate debts into one payment at a lower rate.
» MORE: How to get a personal loan
Lenders make their decisions based on factors including your 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 of 600 or lower. Consumers who don’t qualify for unsecured loans may be offered secured or co-signer 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.
» MORE: Where to get a personal loan
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 can receive your money as soon as the next day.