Whether you need to pay off debt or cover an unexpected expense, a personal loan can be helpful. But it’s important to understand how these loans work before you apply. A personal loan is a lump sum of cash that you borrow from a lender to pay for expenses. You typically receive the funds within one to seven business days, and then you make payments until the debt is repaid in full.
Unlike credit cards, which can be used to finance almost any purchase, personal loans usually have fixed interest rates and repayment terms. In addition, you may be able to choose between secured and unsecured personal loans. Secured personal loans require you to put up something of value, such as a car or an account balance, that the lender can take back in the event of default. Unsecured personal loans, on the other hand, do not require any collateral. You’ll typically get the best terms on a personal loan with a good or excellent credit score.
A personal loan can help with a variety of expenses, including paying off high-interest debt or financing a major purchase such as a wedding or home improvement project. But the terms and conditions of personal loans can vary widely, so it’s important to shop around to find the best deal. Consider factors such as the amount of money you can qualify to borrow, rates and fees, and the lender’s reputation. You can use WalletHub’s free personal loan calculator to get a sense of your options.
You can obtain a personal loan from many different sources, including banks, credit unions, online lenders and even peer-to-peer lenders. Some of these lenders specialize in providing loans to borrowers with less-than-perfect credit, but those loans often come with higher interest rates. Lenders may also have additional requirements for eligibility, such as steady employment and income.
To apply for a personal loan, you’ll generally need to submit your financial information to the lender, such as bank statements and pay stubs. If you’re approved, the lender will provide you with a promissory note that details the terms of your agreement. If you’re unsure about your ability to obtain a personal loan, you can prequalify with several lenders without affecting your credit score.
While you can use a personal loan for almost any purpose, it’s often most useful to consolidate debt or finance a large purchase. These expenses can add up quickly, and a personal loan can help you pay for them more affordably than a high-interest credit card.