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A personal loan is an installment loan that can help borrowers meet a wide range of goals, including consolidating debt and covering big purchases. When you take out a personal loan, you’ll receive a lump sum that you’ll pay back in fixed monthly payments, over the course of a loan term that you choose.
Personal loan rates are often lower than credit card cash advance APRs but higher than what you’d pay if you qualified for a 0% APR credit card. Along with making sure you can afford the monthly payment, it’s important to know whether a personal loan is right for you.
Use the personal loan calculator above to see how much you’d pay, per month and overall, which will help you compare your options.
Related:Compare Personal Loan Rates
How to Get a Personal Loan
While the exact application process may vary depending on your lender, you can follow these general guidelines to apply for a personal loan:
- Check your credit score. First, check your credit score through a website that offers free scores or your credit card provider. This will help you understand your creditworthiness and qualification chances. We recommend a score of at least 610; however, a score of at least 720 will yield the most favorable terms.
- If necessary, take steps to improve your credit score. If your score falls below 610 or you want to boost it to receive the most favorable terms, take time to improve your score, such as lowering your credit usage or paying off unpaid debts.
- Determine how much you need to borrow. Calculate how much money you want to borrow. Keep in mind, you’ll receive your funds as a lump sum and have to pay interest on the entire amount—so only borrow what you need.
- Shop around for the best terms and interest rates. Many lenders will let you prequalify before applying, which lets you see the terms you would receive without a hard credit inquiry or damaging your credit score.
- Submit a formal application and await a lending decision. Once you find a lender that offers you the best terms, apply online or in person. Depending on the lender, this process can take a few hours to a few days.
- Repay your loan.Once you receive the funds, your repayment period will begin. Setting an autopay is a handy way to never miss a payment. If you decide you want to pay off your loan early, be sure to check if your lender charges a prepayment penalty.
Related: 5 Personal Loan Requirements To Know Before Applying
What Is a Good Interest Rate on a Personal Loan?
A good interest rate on a personal loan is one that’s lower than the national average, which is about 12%. However, the rate you’ll receive heavily depends on your credit score, income and overall creditworthiness as a potential borrower. To receive the most favorable interest rate, be sure to maintain a good-to-excellent credit score of at least 720, have consistent income and reduce any unpaid debts.
Personal Loan Alternatives
Personal loans aren’t right for everyone. If it doesn’t feel like the right financial decision for you or you don’t qualify, consider personal loan alternatives including:
- Savings. You can avoid fees and interest if you’re able to cover your expenses with savings. Keep in mind, taking money from a qualified retirement account before the designated retirement age often includes an early withdrawal penalty. So this option should be avoided when possible.
- Credit card. Credit cards typically have higher interest rates than personal loans but may be easier to qualify for if you have damaged credit. However, if you have a strong credit score, you may be able to qualify for an interest-free financing credit card, which can save you money on interest payments.
- Personal line of credit. Unlike a personal loan, which you receive as a lump-sum amount, a line of credit lets you access funds up to a certain limit on an as-needed basis; you will only pay interest on the amount you borrow. This makes a line of credit an excellent option for projects or events where expenses will be spread over several months or years.
- Home equity loan or line of credit. Home equity lines of credit (HELOCs) and home equity loans are financing options that the equity in your home secures. If you’re considering a loan that’s secured by your home, be sure you understand the differences between HELOCs and home equity loans.
Personal Loan FAQs
What can I use a personal loan for?
Personal loans are very flexible. Common reasons to apply for a personal loan include consolidating multiple debts into one; paying for home improvements or a major life event, like a move; or covering emergency expenses.
While it’s possible to use a personal loan to finance nearly any purchase, student loan and auto loan interest rates are typically lower than personal loan rates. So college costs and car financing may not be wise uses for a personal loan.
How to get a personal loan with bad credit?
If you have fair or bad credit (below 670), you’ll need to rely on fair credit personal loans or bad credit loans. While most lenders require you to have good credit to qualify for a loan, some lenders offer loans with minimum credit score requirements as low as 580. Before applying, take the necessary steps to improve your credit score to ensure you get the best terms possible.
How long are personal loan terms?
Personal loan terms typically last from one to seven years. The shorter the term you choose, the less interest you’ll pay overall. Opt for a term that will provide a monthly payment you can afford but that won’t significantly add to the cost of your purchase.
How long does it take to get a personal loan?
When you apply for a personal loan, you’ll typically receive a decision within a couple of hours to a few days, depending on your lender. Online lenders are usually able to provide prompt decisions while banks take longer to process applications. If your lender or bank needs more documentation, this may slow the process down, and the turnaround time will become partially dependent on how quickly you can get them the documents.
Where can I get a personal loan?
Personal loans are available from traditional lenders, including banks and credit unions, in addition to online lenders and peer-to-peer lending platforms. When comparing personal loan offers, check not only the APR you qualify for, but the fees you’ll be charged and the options available to you if you experience financial hardship and have trouble making payments.
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As an expert in personal finance and lending, I can confidently delve into the concepts presented in the Forbes Advisor article about personal loans. My extensive knowledge and hands-on experience in the financial industry allow me to provide insights and valuable information on each aspect covered in the article.
Personal Loans Overview: A personal loan is a versatile installment loan that assists borrowers in achieving various financial goals, such as debt consolidation or significant purchases. It involves receiving a lump sum upfront, which the borrower repays through fixed monthly payments over a predetermined loan term.
Interest Rates and Comparison: The article rightly emphasizes the importance of understanding personal loan rates. While personal loan rates are generally lower than credit card cash advance APRs, they may be higher than those of a 0% APR credit card. The key is to compare options, considering not only the interest rates but also the overall terms.
Application Process: The process of applying for a personal loan involves several key steps. It begins with checking your credit score, as a higher credit score typically results in more favorable terms. The borrower should then determine the loan amount needed and shop around for the best terms and interest rates. Finally, submitting a formal application leads to a lending decision, and once approved, the borrower enters the repayment phase.
Factors Influencing Loan Approval: Credit score, income, and overall creditworthiness significantly influence the interest rate and terms offered. A credit score of at least 720 is recommended for the most favorable terms, but maintaining a good-to-excellent credit score is crucial.
Alternatives to Personal Loans: The article wisely introduces alternatives to personal loans for those who may not find them suitable. These include utilizing savings to avoid fees and interest, considering credit cards with potential 0% APR financing, exploring personal lines of credit, or tapping into home equity through loans or lines of credit.
Loan Repayment and Early Payment Considerations: Once a personal loan is secured, setting up autopay is recommended to avoid missing payments. Additionally, borrowers should be aware of potential prepayment penalties if they choose to pay off the loan early.
FAQs and Additional Information: The article covers common questions, such as the purposes of personal loans, obtaining a personal loan with bad credit, the duration of loan terms, and the time it takes to get a personal loan. It provides a comprehensive guide for potential borrowers seeking clarity on these aspects.
In conclusion, the Forbes Advisor article serves as a valuable resource for individuals navigating the realm of personal loans. It offers insights, guidance, and practical tips to help readers make informed decisions based on their financial situations.
