Personal loans can provide a cost-effective way to pay for certain large purchases or can help you consolidate high-interest credit card debt and retire it at a lower interest rate.
What is a personal loan?
A personal loan is money borrowed from a bank, credit union or online lender for nearly any purpose, typically without collateral. These loans are often repaid in equal monthly installments over a set time period, such as three to five years.
How to use a personal loan
Since there are few, if any, restrictions on how personal loans can be used, borrowers use them for many purposes. Some of the most common include:
- Debt consolidation: Obtain a personal loan at a reasonable interest rate and pay off outstanding credit card bills that are charging high interest rates.
- Medical or health expenses: Unexpected medical or dental bills can be costly to pay off over time on your credit card. A personal loan is likely to have a lower interest rate than a credit card and may make it easier to pay health bills over a set period.
- Wedding: Rather than rack up credit card debt, personal loans can enable borrowers to pay for their dream wedding without paying high interest rates.
- Travel: Sometimes it isn’t possible to save up for a trip in advance, such as when it is necessary to visit a relative who is ill. A personal loan can facilitate a trip today that is paid off in installments over time.
- Home improvement: Personal loans help homeowners pay for current emergency repairs or make timely improvements that facilitate the sale of a home.
Qualifying for a personal loan
Lenders evaluate your income, current debt level, and credit score, among other things. Review our detailed article on how to apply for a personal loan and learn about borrowing options for various credit scores.
If you want a personal loan and are concerned about your ability to borrow with bad credit, see the advice and guidance in our article on how to get a personal loan with bad credit.
Be sure to compare terms from several different lenders before selecting a personal loan that best meets your needs.