A personal loan can be used for just about anything, from paying down debt to financing a home renovation. But it’s important to shop around because lenders offer a wide variety of rates, terms and fees. The best personal loans have competitive interest rates, especially for borrowers with good credit scores and debt-to-income ratios. You can find the right one for you by comparing offers from multiple lenders, including those that offer quick turnaround on approval and funding.
You can obtain a personal loan from banks, credit unions, consumer finance companies, online lenders and peer-to-peer lenders. Most personal loans are unsecured, meaning that you don’t need to put down any collateral. But some lenders offer secured personal loans, in which you pledge an asset like a vehicle or savings account as collateral. Secured personal loans typically come with lower interest rates than unsecured personal loans because lenders can recoup their losses if you fail to repay the debt.
It’s important to think about why you need a personal loan before you apply. The reason you want the funds could influence what types of lenders you consider and how you manage your loan. For example, if you’re seeking an unsecured personal loan, the lender may report your payments to credit bureaus, and missing payments can damage your credit score. If you’re applying for a personal loan to pay off existing debt, the new payments may be a better fit than your existing monthly payments on high-interest credit cards.
A personal loan can help you cover unexpected expenses, such as medical bills or repairs. It can also provide cash for big-ticket items, such as a wedding or a vacation. But these expenses can also be financed more affordably with a 0% APR credit card, which often lasts for 15 to 21 months and doesn’t charge interest on purchases made during the promotional period.
While you shop for a personal loan, consider the minimum requirements for the lender to approve you. Lenders can set their own credit score and income requirements, and they can also charge different origination fees, which are paid to process the loan application. You can also get prequalified for a personal loan by entering your information into a lender’s application, which lets you see what type of rates and terms you might qualify for without incurring a hard inquiry on your credit report.
Once you’ve found a personal loan that matches your credit profile, it’s important to read the fine print carefully and understand what happens if you miss your payments. For example, many lenders will engage third-party debt collectors if you fail to make your payments. In addition, missed payments can impact your credit score, which can stay on your credit report for up to seven years. To avoid missing payments, consider getting a cosigner to help ensure you meet the requirements for your personal loan.