What Is a Personal Loan?

A personal loan is a type of installment credit issued to a borrower by a lender, such as a bank, credit union, or online lender. You must meet the lender's eligibility requirements to get a personal loan. If approved, you can use your loan for almost anything, such as paying for home renovations or a large purchase. You're responsible for repaying the loan by making regular payments over a certain period, which usually includes interest.

How Personal Loans Work

Personal loans allow you to use the loan funds for practically any purpose, such as home renovations, medical expenses, vacations, and large purchases. They're offered by traditional lenders like 澳洲幸运5官方开奖结果体彩网:banks and credit unions as we🌠ll as nontraditional sources,🌞 such as online lenders.

You can apply for a personal loan online, over the phone, or in person. Most lenders require a minimum 澳洲幸运5官方开奖结果体彩网:credit score and that you have a source of income. You also may need 澳洲幸运5官方开奖结果体彩网:collateral to secure the loan. In most cases, lenders can approve loans within one to two business days, but more complex applications or lenders with heftier 澳洲幸运5官方开奖结果体彩网:underwriting can take longer.

If approved, the lender outlines the terms in the loan documents. These terms include the payment amount and date (which is usually monthly), the interest rate, and the length of the loan. The total amount of the loan is 澳洲幸运5官方开奖结果体彩网:disbursed to the borrower less any fees.

Common Features of Personal Loans

Interest Rate and Monthly Payments

Lenders charge interest, which is how they're compensated for lending money. Your interest rate is based on several factors, including your credit score, the type of loan, and an existing relationship if it exists. Rates can be 澳洲幸运5官方开奖结果体彩网:fixed or variable, depending on the lender and the loan. Fixed rates remain static༒ throughout the life of the loan, while variable rates can change with the market.

Payments are fixed, which means you know exactly how much you'll pay—normally once each month on a specific date. The payment amount includes 澳洲幸运5官方开奖结果体彩网:principal and interest. The majority of your payments go towar๊d interest during the earlier phase of repayment. As time goes on, a greater poಞrtion of the payments go toward the principal balance.

A 澳洲幸运5官方开奖结果体彩网:personal loan calculator can help you determine your payments.

Repayment Terms

Lenders establish 澳洲幸运5官方开奖结果体彩网:repayment terms, usually in months, such as 48 months or 60 months. You start making payments on a designated date and continue to do so until the loan༺ matures or is paid off in full.

Secure vs. Unsecured Personal Loans

澳洲幸运5官方开奖结果体彩网:Secured loans require a form of collateral that's equivalent in value to the amount being borrowed. You can use assets like bank accounts, cars, and real estate as collateral. Because it reduces the 澳洲幸运5官方开奖结果体彩网:credit risk, offering col😼lateral can increase the chances of getting approved and may help ꦅyou get a lower interest rate.

澳洲幸运5官方开奖结果体彩网:Unsecured loans are the most common type of personal loans. These aren't secured and are generally based on your 澳洲幸运5官方开奖结果体彩网:creditworthiness. Individuals with higher credit scores tend to have a better chance of qualifying for unsecured loans, but interest rates are often s𒁏till higher compared to secured loans because the lender is assuming a greater risk.

Fees

Lenders may or may not charge fee✅s to personal loan borrowers, including:

• Application or 澳洲幸运5官方开奖结果体彩网:origination fee: This fee covers the application, underwriting, and loan documents.
• Credit report fee: Lenders may charge applicants a fee to pull their 澳洲幸运5官方开奖结果体彩网:credit report.
• Underwriting fee: Some lenders may charge a separate fee for the underwriting process, which determines whether a borrower is creditworthy.
• Prepayment fee: This fee is charged if you pay the loan off before the 澳洲幸运5官方开奖结果体彩网:maturity date.
  

When Is a Personal Loan a Good Idea?

Personal loans make sense when you need to fund a large purchase or expense. For instance, a loan can be helpful during an emergency or if you wish to consolidate debt. Paying off high-interest 澳洲幸运5官方开奖结果体彩网:credit cards and other debts with a 澳洲幸运5官方开奖结果体彩网:debt consolidation loan gives you a single monthly꧟ payment that's easier to manage.

Don't get a loan if you don't have a steady source of income and can't afford the monthly payment, have a lot of debt, can't manage your money, and/or have a bad credit score. And don't try to get a personal loan to pay your expenses if you can budget for them instead. Rather than reaching out to a lender, see where you can eliminate 澳洲幸运5官方开奖结果体彩网:discretionary spending and put that money to better use.

How to Qualify for a Personal Loan

Every lender is different, but they tend to have some basic requirements for person🐼al loans. These inclu🌌de:

• Minimum credit score: While you may not be disqualified for a loan with a low score, you have a higher chance of approval with a better score. According to Experian, you'll typically need at least 580 to qualify and 700 if you want favorable loan terms. Check your credit score, improve it if needed, and understand what score your preferred lender requires before you apply.
• Income: Lenders want to know that you can pay back the loan, which is why you may have to submit proof of income, such 澳洲幸运5官方开奖结果体彩网:pay stubs or an employment letter.
• 澳洲幸运5官方开奖结果体彩网:Debt-to-income (DTI) ratio: This is a financial metric that shows lenders how much of your income is used to pay your debts each month. The ideal target is 36%, although some lenders may accept slightly higher ratios. To lower your ratio, shave off as much of your debt as possible or increase your monthly income.
• Collateral: Securing your loan with an asset can improve your chances of getting a loan. Collateral decreases the risk to the lender because it can seize the asset used to secure the loan should you default. Keep in mind that you're still responsible for any remaining balance if this happens.
• Co-signer: A 澳洲幸运5官方开奖结果体彩网:co-signer signs the application with you and accepts responsibility for the loan if you default. This individual ideally has a great credit score to improve your approval odds and to help you get favorable terms.

How to Get a Personal Loan

If you're hoping to get a personal loan, the best place to start is your bank or credit union. You may get better offers or have a higher chance of approval if you already have an existing relationship with the lender. Keep in mind larger institutions may have stricter borrower requirements and loan terms that aren't very favorable.

澳洲幸运5官方开奖结果体彩网:Online lenders are another possibility. They make applying and getting approved easy—most promise an answer and funding within one to two business days. You can easily compare loan offers from multiple l🌊enders because thei🧸r terms are generally listed on their websites. However, if the lender doesn't have any physical branches, you may only be able to manage your loan online.

Look through some of the (unsolicited) offers you get from lenders in the mail. In many cases, you may be 澳洲幸运5官方开奖结果体彩网:pre-approved and can easily check the loan amouဣnt a🎃nd rate quickly without impacting your credit score.

Once you're ready, follow these steps to get a personal loan:

1. Research lenders, their terms, and requirements.
2. Once you've chosen a lender, see if you can get pre-qualified.
3. Gather any documents you may need, including a copy of your ID and proof of income. You can also submit your recent 澳洲幸运5官方开奖结果体彩网:tax returns (usually for the last two years) if desired/needed.
4. Fill out the application.
5. Wait for a decision. The lender may ask for additional information or documentation, so be prepared.
6. If approved, sign your documents and provide your banking information so the lender can deposit the loan funds.

If you aren't approved, your lender should explain why. Contact them if you require clarification.

Comparing Personal Loan Lenders 

If you're looking for a loan, it's a good idea to compare lenders and what they have to offer. Here are a few factor that you may want to take into account:

• Loan types, including secured and unsecured loans
• Requirements, such as credit scores and monthly income
• Options for loan terms (or the length of time for the loan)
• 澳洲幸运5官方开奖结果体彩网:Annual percentage rate (APR) or the annual interest rate on the loan
• Fees, such as origination and prepayment fees (this can add to how much you owe to the lender)
• 澳洲幸运5官方开奖结果体彩网:Customer service, which is important if you need to contact the lender should you have questions or concerns
  

The Bottom Line

A personal loan can help you get money quickly to meet your financial needs. Before you apply, make sure you qualify by checking your credit score and researching multiple lenders. Determine how much you can afford to borrow so you don't overextend yourself. Once approved, make your payments on time so you don't damage your credit score.