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Personal Loan Guide

A personal loan can be a fast way to consolidate debt, cover a large purchase, or handle an emergency. Here is how they work and how to choose the right one.

What is a personal loan?

A personal loan is an installment loan you repay in fixed monthly payments over a set term, usually 1 to 7 years. You receive the money as a lump sum and pay it back with interest. Unlike a credit card, the rate and payment are typically fixed, which makes budgeting easier.

How interest rates are set

Lenders look at your credit score, income, employment history, and debt-to-income ratio. The stronger your profile, the lower the annual percentage rate (APR) you are likely to receive. Your APR includes both the interest rate and any origination fees, so it is the best number to use when comparing offers.

Secured vs. unsecured personal loans

Most personal loans are unsecured, meaning you do not put up collateral. If you miss payments, your credit score suffers and the account may go to collections. Secured personal loans, backed by savings or another asset, often have lower rates but carry the risk of losing the collateral.

How to compare personal loan offers

  • Compare APRs, not just interest rates, because fees matter.
  • Check for origination fees, late fees, and prepayment penalties.
  • Prequalify with lenders that use a soft credit pull so your score is not affected.
  • Choose a term that balances an affordable monthly payment with the lowest total interest cost.

When a personal loan makes sense

  • Consolidating high-interest credit card debt into one lower-rate payment.
  • Financing a necessary home repair or medical expense.
  • Covering a one-time large purchase with a clear repayment plan.

A personal loan is usually not the right tool for everyday spending or investing, because the interest cost can outweigh any potential return.

Tips to get approved for less

  • Pay down existing debt to improve your debt-to-income ratio.
  • Check your credit report for errors before applying.
  • Do not apply for multiple loans at once; hard inquiries can lower your score.
  • Consider a co-signer if your credit history is thin.

Compare lenders

See our personal loan comparison for a side-by-side look at lenders, terms, and features.

Calculate your payment first

Before you apply, use our free loan calculator to estimate your monthly payment, total interest, and full amortization schedule.