A personal loan is money you borrow from a lender for any purpose, typically with a fixed interest rate, a set repayment period and a monthly payment. You typically don’t need collateral to qualify for a personal loan and the terms can range from one year to seven years.
When a large expense comes up and you don’t have enough cash on hand or if your credit card balances are too high, a personal loan can be an option to help ease the burden. But it’s important to take the time to research and compare multiple lenders and loan products before applying for a personal loan. The wide variety of personal loan options available means there’s likely a product that is a good fit for your financial profile.
Getting a personal loan typically involves a formal application process that requires documents verifying your identity and income as well as a hard credit inquiry, which can temporarily lower your credit score. It’s a good idea to work on improving your credit profile before you apply for a personal loan, which can save you money by qualifying you for a lower interest rate and reducing the amount of debt you need to repay.
Personal loans are also popular to consolidate existing debt, which can be more manageable with a single monthly payment and a set payoff date. Be sure to check with your current credit cards and other lenders to see if you can consolidate those payments into a personal loan with a lower interest rate and better terms.