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It may. Specific loan purposes may be seen as riskier than others. For example, if you’re applying for debt consolidation, you may already appear to be a higher risk than someone who’s buying an asset like a car.
However, being approved for a loan will depend more on how the lender assesses your risk than on what you plan on using your loan for. Ultimately, your eligibility will come down to whether you meet the lender’s eligibility criteria and if you can afford the amount you’re looking to borrow.
Personal loan annual percentage rates (APR) — the loan’s interest rate, plus fees — can range from 4% to 36%. The average interest rate for a 24-month personal loan was 11.48% in the first quarter of 2023, according to the Federal Reserve. Personal loan interest rates have been on the rise since 2022, so you’ll likely get a higher rate than you would before.
Aside from market conditions, the rate you get depends on the following factors:
Your monthly payment depends on the loan term and your rate. You can figure out the monthly cost of a loan by using our payment calculator.
Some lenders don’t charge additional fees on a personal loan, while others do — with origination fees being the most common. An origination fee is a fee your lender charges at closing to cover the cost of processing your application and the agreement.
Typically, it’s a percentage of your loan amount — usually between 1% and 10% for a personal loan, with the average around 8%. Lenders usually consider the following factors when coming up with your origination fee:
The origination fee applies after you’ve been approved and signed your loan documents. Lenders either deduct this fee from your total funds or add it to your loan balance. If it’s added to your loan balance, that will have a bigger impact on the overall cost of the loan, since it will accrue interest.
The APR tells you how much you’ll pay in interest and fees on your personal loan over one year. This makes it the easiest way to compare the cost of loans with the same term.
It often includes an origination fee, which lenders charge after you sign your loan contract. But it doesn’t include penalties like late fees, nonsufficient funds (NSF) fees or prepayment penalties.
Crunch some numbers to figure out how much you need to borrow and how much you can afford to pay back each month. Also, compare different types of loans to find the one that suits your needs best.
Look for lenders that offer the type of loan you need and eligibility requirements you can meet. Then compare factors like rates, fees and terms.
After you narrow down your choices, fill out a quick preapplication with a few different lenders to learn which rates and terms you might get. This usually doesn’t affect your credit score.
After you decide on a lender, follow the steps to complete the full application and submit documents like pay stubs to verify your income.
You have a variety of personal loan providers to pick from. However, you’ll typically have more loan options if you have a stronger credit score. Depending on the type of provider you choose, you can apply for a personal loan in person, online or over the phone.
There are many safe and legitimate nonbank lenders out there.
You’ll often find that you can borrow the same loan amount from a nonbank as you would from the big banks, along with the same loan terms. A nonbank lender may also offer competitive rates and additional perks, such as credit score monitoring or debt relief guidance. And they can sometimes offer innovations that larger banks take longer to implement — like single-form loan applications and online approval tracking.
No matter which lender you apply with, be sure to check the reviews online to see if they’re legitimate as a company and if the loan product is safe.
There’s a personal loan for almost any type of borrower. But you have to meet the following criteria to qualify with most lenders:
Lenders sometimes look beyond the basics when evaluating your application. The following criteria could make a difference in whether you get approved or the rate you receive.
While a personal loan can be used in several ways, you also have other financing options to consider.
Personal loans and credit cards are both types of credit that you have to repay with interest, but with some differences. Personal loans are lump-sum payments that you repay within a specified term, whereas credit cards offer an ongoing and revolving preapproved borrowing amount.
Personal loans are best for purchasing big-ticket items like vehicles or home remos, or to consolidate debt. They can carry lower interest rates, making them cheaper than credit cards. On the other hand, credit cards are better for smaller purchases and to maintain a regular cash flow — plus, many come with rewards programs and interest-free grace periods.
Read more about personal loans with these answers to common questions.
The best place to borrow depends on your priorities. If you need money fast, an online lender can get you funds as soon as the next business day. But if you’re looking for a low interest rate or origination fee, banks tend to offer the least expensive option.
You can qualify for a personal loan with a credit score of 550. But your options are limited if you have bad credit — or a credit score under 580. If you need money quickly, you might consider a bad-credit lender, which often offers funding as soon as the next business day.
But you could end up paying a higher interest rate and origination fee than you would with a bank or online lender that offers personal loans to those with good credit scores. If you have the time, you might be eligible for personal loans from a credit union or local bank. These often have lower credit requirements than big national banks and offer relatively low interest rates.
While most lenders offer funding between $2,000 and $50,000, it’s possible to find a $100,000 personal loan. But not everybody can qualify. Generally, you’ll need to have a credit score of at least 760, a debt-to-income ratio under 20% and enough income to support monthly payments for the loan term you choose.
Online lenders tend to have higher approval rates than other providers and often offer some of the easiest personal loans to get approved for. But going for a lender with a high approval rate often means you’ll land a higher interest rate and origination fee than you might pay with another provider. Consider prequalifying with a few lenders with minimum credit score, debt-to-income ratio and other requirements that you meet.
Credit cards can be a better choice if you can repay the amount you need to borrow within a month or two. While your credit card likely has a higher interest rate than a personal loan, you could end up paying no interest at all if you can pay it back over a short period of time. A personal loan is helpful when you want to pay off a large purchase or refinance credit card debt with a low monthly payment.
Most lenders offer personal loan terms that range from three to seven years. However, it’s possible to find a loan term as short as one year or as long as 12 years with a longer-term loan. Your loan term determines your monthly payment and total loan cost. To strike a balance between monthly payments and total loan cost, go for the shortest term you can afford.
Personal loans can improve your credit score by adding to your history of on-time payments and diversifying the types of credit in your name.
When you apply, it can temporarily hurt your credit, however, since lenders run a hard credit check which dings your score. However, you may be able to get prequalified for a loan before applying with a soft-credit check that doesn’t affect your credit score. And if you miss a payment or default, it can damage your credit.
You can, but it might not end well. Investing itself is incredibly risky, and taking out a personal loan increases that risk even more.
Some experienced investors take out personal loans after they’ve gotten the hang of weighing the risks, but it takes a while to get to their level. And even they don’t always win.
Prime borrowers typically have credit scores above 720, no delinquencies on their credit report and a minimum six-year credit history.
Yes, many lenders offer loans with no origination fee — and several offer loans with no fees at all. Compare no-fee personal loans and find the best option for your needs.
Unsecured loans, or otherwise known as signature loans, are loans that don’t require any collateral. They are based on your creditworthiness. Keeping your credit score at good or excellent and a clean credit history will get you a better rate. Usually you need to have proof of income, be a resident of the US and have a Social Security number to apply for an unsecured loan.
Often, nothing will happen — unless the lender finds out. But if you violate the contract of your loan, your loan goes into default.
Your lender could also take legal action if it finds out that you used the money for something other than what you agreed to. This would be on the grounds that you falsified information on your application. So it’s best to be honest about the way you plan to spend the funds, be it consolidating debt or financing legal fees.
No. To purchase a home, you’ll need a mortgage. Mortgages work differently than personal loans and are a bit complicated. To learn more about how home loans work, read our guide to mortgages.
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