What Is a Personal Loan?

A personal loan is a kind of installment loan that you can use for most major purchases or bills. Borrowers will receive their personal loans in a one-time lump-sum payment. These loans usually come with a fixed interest rate, making it easier to plan monthly expenses and a financial future. 

To find out if a personal loan is right for you, talk to a lender today! 

Many personal loans are unsecured loans, meaning that borrowers won’t have to put up collateral to get their loans. Instead of using collateral, lenders will look at a borrower’s credit score, debt-to-income (DTI) ratio and cash flow to determine loan amount and rate. 

Borrowers will receive their approved loan amounts in lump-sums. After that, a borrower will make monthly payments on their approved amount and interest. The interest you pay on your loan will be a fixed amount for the life of the loan, allowing you to better budget for your monthly payments. 

Standard interest rates on personal loans are 9.99% to 21.99%. Typical loan amounts range from $4,000 to $50,000. 

A personal loan can be used for a number of borrower needs. Some popular uses for personal loans include: 

• Consolidating debt: If you have multiple debts, such as auto loans, student loans or credit card debt, you can combine them into one monthly payment that may have lower interest rates. 

• Buying a car: While auto loans are a more popular option when buying a car, some borrowers use a personal loan because they won’t require using the car as collateral. 

• Home repairs and renovations: Whether you need new plumbing, a replacement HVAC unit or are looking to update anything around your home, personal loans can help pay for them. 

• School expenses: While not all lenders approve of personal loans to pay for tuition, personal loans could help pay for books or housing while you are in school. 

• Funding a wedding: Weddings can be an expensive experience. You can spread out any expensive payments by funding a wedding through a personal loan. 

• Pay for a vacation: If you are looking to finance a grand vacation, like a honeymoon, you might consider a personal loan. Personal loans allow you to spread the payment of a vacation over time. 

Like any kind of loan, personal loans come with their own pros and cons depending on the needs and financial situation of a borrower. 

Some of the reasons that borrowers decide to get a personal loan are: 

• Fixed monthly payments make it easier to plan your monthly budget. 

• Interest payments tend to be lower than credit cards. 

• Many personal loans are unsecured, so you don’t have to put up collateral. 

• Depending on your lender, you could quickly get an approval and access to your funds. 

• Making regular payments on a personal loan can build your credit score. 

• The funds you get from a personal loan can be used for a variety of reasons. 

A few things to consider when deciding if a personal loan is the right option for you are: 

• You are limited to the amount of funds you will receive without getting another loan. 

• Some personal loans come with additional fees, which adds to the overall loan cost. 

• Monthly payments can be challenging if financial situations change. 

• Missed or late payments could affect your credit score. 

• Personal loans could have higher interest payments compared to secured loans like home or auto loans. 

• With the ease of getting personal loans, some borrowers take more than they need, which can result in higher debt. 

Here are some of the qualifications lenders will look for in order to get a personal loan. 

• Credit score: The better the credit score, the better the chance of borrowers qualifying for a personal loan and the more likely they are to get more favorable interest rates. 

• Debt-to-income: A DTI ratio shows how much of your monthly income is tied to paying off debts. A higher DTI can make it harder to get a personal loan. 

• Sources of income: High or multiple forms of income show lenders that a borrower will be able to make monthly payments on time. 

• Co-signer: If a borrower doesn’t meet the qualifications for a personal loan themselves, a co-signer can help. Co-signers will agree to make any payments if the primary borrower can’t.  

The exact qualifications for a personal loan can vary by lender. 

When looking to apply for a personal loan, you can talk with a lender and see if you meet their qualifications.  

Some lenders offer a pre-qualification, which can let you know if you will be approved for a personal loan. A pre-qualification will let you know what loan amount, rates, length and terms you could qualify for. Pre-qualifications can let you compare rates from multiple lenders before you apply to the right one for you. 

Connect with a lender to find out the personal loan you could qualify for! 

_{Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.} 

_{Information provided is for educational purposes only. It should not be construed as financial or legal advice or instruction. Rate does not guarantee or assume liability for the accuracy, completeness or timelines of the information. You should conduct additional research before making any mortgage related decisions.}