A personal loan is money you borrow for a specific purpose, such as financing home improvement projects or debt consolidation. Many lenders offer fixed interest rates and a set repayment period, which can help make budgeting easier. The best personal loans are available to borrowers with strong credit, a steady income and low debt-to-income ratios.
Personal loans are unsecured, which means you won’t have to put down collateral to receive the funds. However, your lender may review your credit report to ensure you aren’t currently dealing with delinquent payments or other issues that could impact your ability to repay the loan.
Typically, personal loans are offered by banks, credit unions and online lenders. Credit unions often have lower interest rates than banks and other lenders, and they may also be more flexible with how you use the money. For example, some offer smaller loan amounts than other lenders and allow you to apply without becoming a member or opening a bank account.
You can qualify for a personal loan by completing an application and meeting the minimum requirements set by your lender. These typically include a credit score, consistent monthly income and a good history of on-time payments. If your credit needs some work, you might want to consider working with a credit-building company before applying for a personal loan.
If you are approved, your lender will send you the money and your repayment schedule. It’s important to remember that if you miss a payment, your lender can report it to the three major credit bureaus. Then, third-party debt collectors may contact you to collect the overdue amount.