Personal loans offer fixed-rate funding for almost any purpose. Choose between secured or unsecured loans based on your credit and risk tolerance.
October 19, 2025
They're generally accessible to borrowers with good credit and don't require collateral like other loan types.
However, understanding the complete picture—including potential drawbacks like higher interest rates compared to secured loans and strict credit requirements—is essential before committing to a personal loan.
A personal loan is an installment loan from banks, credit unions, or online lenders that you repay in fixed monthly payments over a set term. These loans can fund debt consolidation, medical bills, or major purchases.
Most lenders offer personal loans ranging from $1,000 to $50,000, though some extend up to $100,000. Personal loans come in two main types:
“Collateral is something that you own … which can be used or temporarily transferred in exchange for money. This is considered a secured loan because the creditor can take ownership of your property if you don’t pay back the loan. Most personal loans are non-collateral loans.”
Personal loans typically feature fixed interest rates that never change, with set monthly payments over a defined term (usually 2-5 years, though some lenders offer shorter or longer periods).
The personal loan application process generally follows these steps:
After receiving your loan, you can use the funds for nearly any purpose not specifically restricted by the lender. You'll make fixed monthly payments until the loan is fully repaid.
Personal loans come with several costs you should understand:
Your APR depends on several factors, including:
When evaluating the cost of a personal loan, take a look at the amortization schedule—a table that lists each monthly payment from the time you take out the loan until it is paid off.
You can see how much of your payment goes toward the loan balance and how much goes toward the principal. Your lender may provide you with an amortization schedule, or you can create one yourself online.
It’s also a good idea to look at the total loan costs and interest paid. For example, if you borrow $5,000 on a 36-month personal loan with a 10% APR, the monthly payment will be $161.24, the total cost to repay the loan will be $5,508.24, and the total interest paid will be $808.24.
Lenders evaluate your eligibility using the same factors that determine your interest rate: credit score, income, employment history, debt-to-income ratio, and loan details. For secured loans, they'll also appraise your collateral to determine its value.
"If you have a low credit score and several unpaid debts on your credit reports, this will factor into the terms of your personal loan agreement. If you have a long negative credit history, you will find it hard to get approved for a personal loan because the likelihood of you paying it back is low," says Hishaw.
You have several lender options, each with distinct advantages:
Pro tip: Use pre-qualification tools to see preliminary offers without affecting your credit score. Compare rates and terms from several lenders, including your current bank or credit union if you have an existing relationship.
When comparing lenders, consider the following factors:
Interest rates: The higher the interest rate, the more you pay for the loan. Look for lower APRs (but make sure to consider other factors).
Loan terms: Personal loans often have repayment terms ranging from two to five years, but some lenders have shorter or longer loan terms available.
Fees: Look at loan origination fees, late payment fees, prepayment penalties, and other costs associated with the personal loan.
Loan amounts: Lenders offer personal loans that fall within specific loan amounts. Look for a lender that offers loans in the amount you need.
Monthly payments: Check the monthly payment—a loan that you can’t afford to pay won’t do you any good.
Lender reputation: Research lenders on third-party sites like Trustpilot and the Better Business Bureau. Look for recent headlines about the lender’s business practices, and watch out for any regulatory or reputational issues.
“The Consumer Financial Protection Bureau and Better Business Bureau are all great resources to determine if the personal loan lender is reputable. Also, conducting an internet search to check out if the lender has violated the Fair Debt Collection Practices Act is another indicator to determine if the lender is good or bad,” says Hishaw.
Pro tip: If something sounds too good to be true, it could be a scam. Watch out for any lenders that make bold claims, have unusually low interest rates, or ask for money up front to secure a loan before you even apply.
Once you get a personal loan, you'll need to manage it responsibly to protect your finances and your credit. If you have a secured loan, missing payments could cause you to lose your collateral. Use these strategies to manage your loan responsibly:
Make on-time monthly payments: Timely payments avoid late fees, prevent default, and can improve your credit score over time. Set up automatic payments or calendar reminders to never miss a due date.
Budget for your loan payment: Ensure that there's room in your budget for your monthly payment, even if you have to move some things around. Don’t borrow more than you can reasonably afford to pay.
Pay above the minimum: Want to pay off your loan faster? Put a little extra toward your loan each month. You’ll shrink your number of payments, save money in interest, and close out the loan quicker (just make sure you know if there are any prepayment penalties).
“You should only take out the loan amount that you need. Most of the personal loan lenders do charge higher interest rates than a standard home loan lender, so it's important to keep the amount you borrow low,” says Hishaw.
Personal loans offer flexible financing with fixed rates and predictable payments, making them ideal for debt consolidation, home improvements, and major expenses. Success depends on choosing the right lender, borrowing only what you need, and making timely payments to protect your credit and financial health.
What credit score do I need to qualify for a personal loan?
Most lenders require a minimum credit score of 580-650, though some work with scores as low as 500. Borrowers with scores of 670+ typically qualify for the best rates and terms.
How quickly can I get funded after approval?
Online lenders often fund loans within 1-2 business days, while traditional banks and credit unions may take 3-7 days. Some lenders offer same-day funding for an additional fee.
Can I pay off my personal loan early without penalties?
Many lenders allow early payoff without penalties, but some charge prepayment fees. Check your loan terms before signing and ask specifically about prepayment policies when comparing lenders.
Brian Acton is a seasoned personal finance journalist at BestMoney.com who specializes in loans and debt consolidation. His work has appeared in The Wall Street Journal, TIME, USA Today, MarketWatch, Inc. Magazine, HuffPost, and other notable outlets.
