Personal loans are unsecured loans with fixed annual percentage rates, generally from about 6% to 35.99%. The loan with the lowest rate is the least expensive — and usually the best choice. Other features, including no fees, mobile apps and direct payments to creditors if you’re consolidating debt, set some loans apart.
A personal loan is money borrowed from a bank, a credit union or an online lender that you repay in equal monthly installments, usually over two to seven years.
Personal loans are typically unsecured, which means they don’t require collateral. Lenders instead consider your credit profile, income and debts during the loan approval process. If you fail to repay the loan, your credit can take a hit.
» MORE: Requirements for a personal loan
Within a few days after you’re approved for a personal loan, a lender will deposit the funds, minus any origination fee, in a lump sum into your bank account. Once you have the money, you can use it for nearly any purpose.
Repayment typically starts 30 days after receiving the money. You can pay the fixed monthly amount directly, or some lenders let you set up auto-pay from your bank account. The monthly payments continue until the loan term ends, or earlier if you make additional payments toward your loan. The personal loan is over once you have paid it off in full.
» MORE: How do personal loans affect credit?
A NerdWallet survey published in October 2022 revealed that nearly one-quarter of Americans (24%) took out a personal loan within the past 12 months, borrowing on average $5,046.
Getting a personal loan makes the most sense when:
Personal loans can be used for almost any purpose. Some common reasons borrowers get a loan include:
Using a personal loan for a wedding or discretionary expenses like a vacation can be expensive. NerdWallet recommends using savings for nonessentials to avoid finance charges.
If you're borrowing for emergency or medical expenses, consider less-expensive alternatives, such as community assistance or payment plans.
