Whether your dog needs surgery or you want to update your kitchen appliances, the best personal loans can give you a lump sum of cash at a low fixed interest rate.
With loans for as much as $100,000 and rates as low as 5.40% APR, it’s no surprise that personal loans are more popular than ever. According to an Experian study, demand for personal loans increased by 18.3% between 2021 and 2022 as people used them to pay for home repairs, vacations, and debt consolidation.
However, rates and terms can vary significantly between personal loan lenders, so it pays to do some homework before taking out a loan.
What Are Personal Loans?
Personal loans are a type of installment loan. You borrow a specific sum — such as $10,000, $50,000, or $100,000 — and repay it in fixed amounts over the loan’s repayment term.
They are close-ended loans, meaning you get the loan amount as a lump sum at the start of the loan. Personal loans are usually repaid in monthly installments over two to seven years.
Personal loans tend to be unsecured, so they don’t need any form of property as collateral. Instead, the lender considers your creditworthiness and looks at your credit score and debt-to-income ratio to determine your eligibility for a loan.
How Are Personal Loans Used?
Unlike some forms of debt, such as student loans, personal loans have few limitations on their uses. Common uses for personal loans include the following:
- Debt consolidation: If you have outstanding medical bills, credit card debt or other high-interest debt, you can use a debt consolidation loan to combine your accounts into one loan. Personal loans usually have lower interest rates than credit cards, so debt consolidation can help you save a substantial amount of money and pay off your debt faster. Use our debt consolidation calculator to find out how much money you can save by consolidating your debt.
- Medical expenses: If you have a medical procedure that’s elective or not covered by your insurance, such as fertility treatments, you can use a personal loan to cover the cost. After the procedure, you’ll have several years to repay the loan.
- Moving expenses: Moving to another city or state can be a smart decision if it leads to a new job or allows you to be closer to family, but it can cost thousands. If you don’t have the money in savings, a personal loan can allow you to move your belongings and start your new life.
- Home renovations: If you want to update your kitchen, replace your floors, or install a swimming pool, a personal loan can be a useful financing option for home improvements.
- Weddings: If you have a dream wedding in mind that exceeds your budget, you can use a wedding loan to pay for the venue, caterer, florist, and even your gown or tuxedo.
- Vacations: Whether you want to visit Rome or Kenya, vacations can be expensive. With a personal loan, you can indulge in that once-in-a-lifetime opportunity and spread out the cost over several years.
- Veterinary bills: If your pet needs an expensive medical procedure, such as surgery for hip dysplasia, the cost can be prohibitive. But with a personal loan, your dog or cat can get the care they need, and you can pay it off in installments.
Although there are a few restrictions on using a personal loan, that doesn’t mean applying for one is always a good idea. Borrowing money to pay for non-essential expenses like a vacation or new appliances can be a costly mistake. You’ll have to repay the loan with interest, and it can make it harder to afford your routine expenses.
Before taking out a loan, consider other options, such as cheaper alternatives or delaying a purchase until you save enough money. If you do take out a loan, make sure the monthly payments fit comfortably within your budget.
Use our personal loan calculator to see how much you’d pay overall, including interest, by taking out a loan.
Personal Loan Calculator
See how much your personal loan will cost in seconds. Enter your loan amount, interest rate, and repayment term to view your estimated monthly payment and total interest.
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Want to find a low interest personal loan? Use our rate comparison tool to check multiple lenders in 2 minutes with no impact on credit.
10 Factors to Consider When Comparing Personal Loans
If you decide to move forward with a personal loan, consider the following factors when shopping around to find the best personal loans:
1. Rates
When it comes to personal loans, rates can be as low as 5.40% or as high as 36%. As of November 2022, the average rate for a two-year loan was 11.21%.
Rates vary based on the lender, your credit, the loan amount, and the desired loan term. Generally, you can qualify for a lower rate by opting for a shorter loan term, such as one to three years. Longer terms, such as five to seven years, are usually more expensive.
2. Loan Terms
Personal loans are usually between two and five years, but some lenders offer loan terms as long as seven years.
Although a longer loan term can be appealing because it gives you a smaller monthly payment, lenders usually charge higher interest rates on loans with longer terms. And with a longer loan term, you’ll pay more in interest over time.
3. Loan Amounts
With a personal loan, you can borrow between $600 and $100,000. However, some lenders have different loan minimums and maximums, and how much you can borrow depends on your income, credit score, and other debt.
4. Fees
Some companies, but not all, charge origination fees. Origination fees are deducted from the loan amount at the time of disbursement. The fee can be anywhere from 0% to 10%.
You might qualify for a loan without origination fees if you have very good to excellent credit. Lenders that cater to borrowers with less-than-perfect credit are more likely to charge these fees.
5. Eligibility Requirements
Each lender has its own eligibility criteria. In general, you need to have good to excellent credit and a source of income to qualify for a loan. Lenders usually have minimum income requirements, such as $30,000 per year.
If you don’t have good credit or aren’t working, you may be eligible for a loan if the lender allows you to apply for a personal loan with a cosigner or joint applicant. When you apply with a cosigner, the lender takes their credit score and income into consideration. The cosigner is also responsible for the loan’s repayment if you fall behind, so the lender will have more confidence that they will get repaid and will be more likely to approve your application.
6. Time to Disbursement
If you need the money quickly to pay for an emergency expense, pay attention to lenders’ disbursement times. Some will disburse funds as soon as the same day you’re approved, while others can take several days.
Most lenders offer electronic transfers, so the money is deposited directly into your bank account. But if you prefer, you can ask the lender to mail you a check.
7. Customer Support
Look for a lender that offers multiple ways to contact customer support, such as by phone, online chat, and email. Pay attention to the lender’s hours of operation, as some customer service departments may be closed on the weekends.
It can also be helpful to check customer reviews on Trustpilot. Or you can review JD Power’s 2022 Consumer Lending Satisfaction Study to find out how major lenders ranked in terms of customer satisfaction.
8. Use Restrictions
Although personal loans have fewer limitations than other loans, most lenders have some restrictions on how borrowers can use loan funds. For example, education or business-related expenses may be prohibited. Before signing a loan agreement, carefully review the loan terms and conditions to ensure you can use the loan for its intended purpose.
9. Direct Creditor Payments
If you plan on using a personal loan to consolidate your debt, a lender that offers direct creditor payments can be helpful. Lenders offering this feature will send the loan funds directly to your creditors (such as your credit card issuers) and pay off the balances.
Otherwise, the money is deposited into your bank account, and you’re responsible for paying off those balances yourself. Direct creditor payments are a faster option, and it prevents you from being tempted to spend some of the funds on non-essentials.
10. Prequalification Options
With many lenders, you can check your eligibility for a loan and view potential loan options by utilizing their prequalification tools. These tools perform soft credit checks, so there’s no impact on your credit score. Not all lenders have a prequalification option, but it can be useful to verify eligibility and rates if you’re shopping around.
Compare Personal Loan Offers From $600 to $100,000
Compare Personal Loan Offers From $600 to $100,000
Finding the Best Personal Loans
A personal loan can be a helpful tool to pay for a major expense or consolidate high-interest debt. And now that you know how to find the best personal loans, you can confidently compare available loan options.
While you can manually shop around on your own, it can be time-consuming. A more efficient way to find personal loan lenders with competitive rates and terms is to use Purefy’s rate comparison tool. By completing a simple form, you can view rates from over 15 lenders, and the process won’t affect your credit.
