For a home remodel, debt consolidation or the vacation of a lifetime, a personal loan may be the answer.
A personal loan gives borrowers cash to use on splurges or expenses. Unlike a line of credit, the loan is repaid at a fixed interest rate over a specific period of time.
How much do personal loans cost?
Borrowers should expect an interest rate higher than the rate charged for a mortgage or car loan.
"Because personal loans are typically unsecured liabilities, meaning you may not need to secure the loan with an asset you own, the annual percentage rate charged by the lending institution can be much higher," says Xavier Epps, financial adviser and president of XNE Financial Advising in Alexandria, Virginia.
Some banks and credit unions allow borrowers to secure personal loans with savings accounts or other assets.
No matter how the loan is set up, borrowers should ensure that they understand the terms of the loan before cashing the proverbial check.
Do's and don'ts
- Do shop around for the best terms and conditions.
- Do be aware of fees. You may be able to find a loan with no origination fee.
- Don't be discouraged by a low credit score. Take control with myBankrate.
How to find the best personal loan rate
The very best personal loan rates go to borrowers with the highest credit scores. That's typically a VantageScore north of about 760.
"In order to find a good personal loan, you must remember that loan approval and the interest rate is going to be based on your credit score, debt-to-income ratio, management of current bills, and your reason for taking out the loan," Epps says.
The trick is to shop around.
"You absolutely should shop around when applying for credit," says Jeff Richardson, spokesman for the credit-scoring model known as the VantageScore.
"Submit your applications at roughly the same time, and compare the terms you're offered before choosing which loan to take," he says.
The credit-scoring model treats multiple hard inquiries in connection with personal loans and other types of loans as 1 inquiry, "provided they are made within a rolling 2-week window," Richardson says.
Start shopping for your personal loan on Bankrate by comparing rates from these lenders.