A personal loan is a lump-sum lent out to borrowers for almost any purpose.
Where to get one: You can get a personal loan from several different types of financial institutions, including banks, credit unions and online lenders.
Interest rates: Personal loan interest rates will vary based on your credit score, but rates generally range from 4.99%-35.99%.
Repayment: The typical personal loan is repaid in monthly installments over an agreed-on period of time.
No collateral: Personal loans are typically unsecured, meaning they aren’t backed by collateral (homes, cars or other types of property).
Some of the most common reasons for considering a personal loan are:
Even if these reasons don’t apply to you, you may still benefit from a personal loan. Bankrate’s personal loans marketplace can help you find the best loan and the best lender for your situation.
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Know the advantages and disadvantages of a personal loan, which include:
PROS
CONS
APR stands for Annual Percentage Rate. APR refers to the extra amount borrowers pay in interest and fees on an annual basis. Lenders calculate APR on a yearly basis, but borrowers are most often responsible for paying APR on a monthly basis.
For more detail on how APR can affect your monthly payments, check out our loan calculator.
A secured loan is backed by a piece of the borrower's property, (like your car, home, or stock investments) known as collateral. If the borrower defaults on the loan, they risk losing their collateral to the lender.
Unsecured loans do not require collateral. Lenders make offers based on a borrower's credit score and credit history.
A repayment term refers to the length of time borrowers have to repay their loan. A personal loan's repayment term can vary between one and ten years, depending on the lender.
Because personal loans are often unsecured, they may come with higher APRs. With unsecured loans, lenders tend to pay extra attention to a borrower's credit score.
The lower a borrower's credit score is, the more they'll have to pay in APR. Lower credit scores can lead to APRs in the double digits.
Loan rates differ by lender, but often opting for a secured loan can help lower APR, even for someone with bad credit. In some cases, secured loans can offer up to 8% less in APR than unsecured loans.
Depending on the loan and the lender, you may have a choice between fixed rate (which stays the same over the life of the loan) or variable (which can rise or fall depending on changes in the market).
The interest on a variable rate loan often starts low but may increase over time. The terms of the loan agreement will specify how often the lender is allowed to raise the interest rate, and some loans cap the maximum rate at a certain percentage. By contrast, the payments and interest charges on a fixed-rate loan will remain the same.
Base your decision on whether you prefer the stability of a fixed rate or the possibility of saving on interest with a variable rate.
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