If you’re looking to make a big purchase, a number of small purchases or consolidate existing debt, you might wonder if a personal loan is the right choice for you. Not all loans are made equal – so familiarize yourself with your financing options before jumping into the application process.
A personal loan is money you borrow from a financial institution. Both the principal and interest must be repaid by the end of the loan term, which is usually between one to seven years. You may be able to borrow from $1,000 to over $100,000 depending on your finances and creditworthiness.
There are two main factors to consider when comparing personal loans:
Fixed vs. variable rate. Ask your lender how it intends on calculating interest. Fixed-rates guarantee a certain interest rate over the life of the loan, while variable-rates can fluctuate based on the market. Some loans may use both, so it’s important to note which yours uses so you can plan your repayments.
Secured vs. unsecured. When comparing loans, ask if you need to put up an asset as collateral. A secured loan requires collateral but will generally have better terms. On the other hand, an unsecured loan doesn’t require collateral and will usually have less competitive terms, but you don’t risk losing an asset if you default.
How can I get a personal loan?
Once you’ve found the right personal loan for your spending needs and financial situation, it’s time to apply. Here’s what you need to know before you submit your application.
Check if you’re eligible. The eligibility criteria provided by lenders is usually the minimum they will accept, so you must meet the minimum age, income, residency, credit score and employment requirements. The lender may also have restrictions on what you can use your loan for. If you don’t meet the criteria, you probably aren’t eligible for the loan.
Confirm the loan is right for you. Can you apply for the amount of money you need? Will you receive your loan in time? Will you be offered terms, fees and rates that meet your budget? If you can’t get the terms you want and can afford, it’s better to consider your other financing options.
Find out what documents you need. The majority of lenders let you submit your documents and complete the entire loan application online. You may need digital copies of your ID, employment and financial documents to send to the lender to verify the information you provide in your application.
Submit your application and wait for approval. If you submit your application online, you’ll usually receive a response quickly. Some lenders will tell you within a few minutes if you’ve been approved, while others may take a few days or even weeks to process your application.
Frequently asked questions
Repayment options differ between lenders. You usually have the choice between direct debits from a bank account, electronic funds transfers, cheques or phone repayments.
You will usually have between one and seven years to repay your loan, with some lenders offering up to ten years.
You can usually repay your loan early if you wish, however if you’re charged a fee or not will depend on the lender. Some lenders offer loans with no early repayment penalties, while others may charge a fee if you pay off your loan early.
It depends on the loan you need and your individual situation. A fixed-rate loan will guarantee you a certain rate for a specific amount of time — you’ll know what your repayments will be each month no matter what happens in the market.
Variable-rate loans give you more flexibility. You may find your repayment amounts fluctuate with the market. This can lead to paying less interest than your original terms — though lenders usually have a base rate you’ll have to pay — but it also means you might pay much more than your original amount. Choosing a variable-rate loan is more of a risk than a fixed-rate loan.
Using your car to guarantee the loan could result in a lower interest rate, but if you default on your loan, the lender can take the car to cover the loss.
There will also be restrictions on what kind of car you can buy. You can generally find two types of car loans — a new car loan or a used car loan. New car loans generally require your vehicle to be less than a specified number of years old and bought from a dealership or private sale. There will likely also be age restrictions on a used car loan. You can learn more with our guide to car loans.
At the end of the day, it depends on your finances and the lender you choose. Carefully consider your options and speak with a financial advisor if you’re unsure of which type of loan to choose.
You can usually make extra repayments during the month if you want, but you may be charged a fee. Check with your lender before you make additional repayments to avoid paying more in fees.
You can be charged for making extra repayments, paying off your loan early, late payments, non-sufficient funds fees (by your lender and your bank), annual fees, monthly fees, application fees, origination fees and others. Check the total list of fees and charges that come with your loan before you apply. If you’re confused about any possible charges, reach out to the lender and ask for clarification.
Aliyyah Camp is a publisher helping folks compare personal, student, car and business loans. Prior to joining Finder, she ran her own personal finance blog and wrote for numerous finance sites. Aliyyah earned a BA in communication from the University of Pennsylvania. She likes to go to the movies and go for runs outdoors.
How likely would you be to recommend finder to a friend or colleague?
Very UnlikelyExtremely Likely
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
finder.com is an independent comparison platform and information service that aims to provide you with the tools you need to make better decisions. While we are independent, the offers that appear on this site are from companies from which finder.com receives compensation. We may receive compensation from our partners for placement of their products or services. We may also receive compensation if you click on certain links posted on our site. While compensation arrangements may affect the order, position or placement of product information, it doesn't influence our assessment of those products. Please don't interpret the order in which products appear on our Site as any endorsement or recommendation from us. finder.com compares a wide range of products, providers and services but we don't provide information on all available products, providers or services. Please appreciate that there may be other options available to you than the products, providers or services covered by our service.