How is a personal loan different than other loans?
A personal loan can be taken out from a bank, credit union or online lender, though we recommend inquiring with your bank or credit union first to see if they offer any existing customer discounts. Personal loans provide borrowers with a lump sum of money, usually between $1,000 and $100,000, and can be either secured (meaning the lender requires collateral) or unsecured (meaning the lender does not), but unsecured is more common. Most personal loans have repayment periods that last between one and seven years, and interest and principal is paid back beginning as soon as the loan funds. Personal loans are commonly used to cover large purchases, to pay off high-interest debt, pay for home remodeling projects or repairs and unexpected expenses.
Is a personal loan right for you?
Some personal loans fund in as little as one day, but to ensure you’re prepared to apply in advance, experts say it’s wise to review your credit report, compare lenders and pre-qualify to get an idea of the loan amount and terms you’ll qualify for. One thing to consider when applying for a personal loan is that because they’re often unsecured, they tend to have higher interest rates than other types of loans. That said, if you don’t have assets to put on the line as collateral and you need money quickly, it might be worth paying a higher interest rate.
Before taking out a personal loan, always make sure you understand the lender’s terms and any fees associated with the application process. Personal loans often have origination fees attached to them, which typically range from 1% to 8% of the total amount of the loan, so you’ll want to make sure you apply for a little extra money to cover the cost of the fees upfront. If you need a $100,000 loan but your origination fee is 5%, you’ll actually want to apply for a $105,000 loan to cover the fees.
How to get the best rate on a personal loan
Borrowers across the credit spectrum have options for personal loans, but the higher your credit score, the lower your interest rate will be. Engaging in a soft credit check won’t ding your score and will give you an idea of what rate you’ll pay. Our LenderCity personal loan guide can also help you navigate the personal loan application process.
