Find out exactly what a personal loan is and how to find the right loan to get to where you want to be.
If you’re looking to make a big purchase, a number of small purchases or even to consolidate existing debt, you might wonder if a personal loan is the right choice for you. What sort of personal loan should you apply for? Secured or unsecured, fixed or variable rate?
There are many options to consider no matter what you’re looking to finance or how much you need to borrow. Our guide below will explain exactly what a personal loan is, what options there are and how you can apply.
What is a personal loan?
A personal loan is a type of credit that helps you finance a personal expense. Terms are typically between one and seven years and can be taken out as secured (with collateral) or unsecured (without collateral). Personal loans start from as little as $1,000 and can reach over $100,000. These loans are available from online lenders, brokers, banks, credit unions and peer-to-peer marketplaces.
Compare personal loans
What can you use a personal loan for?
Personal loans can help you in a variety of different situations, including:
- Consolidating debt.
If you have existing loans or credit card debt, you may be able to save on interest and fees by taking out a debt consolidation personal loan.
- Making a large purchase.
Most large purchases, including jet skis, engagement rings and a new swimming pool, can be financed with a personal loan.
- Buying a car.
If you’re buying a new or used car, you can consider a personal loan to help you get behind the wheel. These are usually called car loans.
- Going on vacation.
No matter where you want to go, you can look into an unsecured personal loan for to pay for flights, hotels and incidentals.
- Much more.
You can use a personal loan to pay for dental work, medical bills, pet care and much more. Learn about what else you can use a personal loan for.
How to compare common personal loan features
- Fixed rate vs. variable rate.
A fixed rate loan will guarantee you a certain rate for a specific amount of time – you know what your repayments will be no matter what happens in the market. On the other hand, a variable rate loan may experience fluctuations in the interest rate depending on the market, which could result in your repayment amount changing. Dig deeper into the rate comparison here.
- Secured vs. unsecured.
A secured loan requires you to put up a valuable asset as collateral. The collateral provides a guarantee to the lender and gives the lender something to recoup in the event that you default on the loan. An unsecured loan doesn’t require collateral. Unsecured loans tend to come with higher interest rates than secured loans because of the increased risk on the lender’s part. Dig deeper into the security comparison here.
“How can I get a personal loan?”
Once you’ve found the right personal loan for your needs and financial situation, it’s time to apply. Here’s what you need to know to submit your application and be approved.
- Check if you’re eligible.
The eligibility criteria given by lenders is usually the minimum they will accept, so you must meet the minimum age, income and employment requirements. The lender may also require you to have good credit or to finance a particular purchase (a new car as opposed to an older car if you are getting a car loan, for example). If you do not meet one or more of the criteria, you are probably not 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?
- 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 identification, 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 can 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 weeks to process your application.