A Beginner's Guide to Personal Loans

A personal loan is a versatile financial tool that can help you cover a large expense, consolidate debt, or finance a significant project. Unlike a mortgage or auto loan, it's often unsecured, meaning you don't need to put up collateral like your house or car.

What is a Personal Loan?

A personal loan is an installment loan, which means you borrow a fixed amount of money and pay it back in regular, equal payments (installments) over a set period. These payments include both a portion of the original loan amount (the principal) and the interest charged by the lender.

Understanding APR (Annual Percentage Rate)

When you shop for loans, the most important number to compare is the Annual Percentage Rate (APR). The APR represents the total yearly cost of borrowing money and includes:

  • The interest rate.
  • Most lender fees associated with the loan (like origination fees).

Because it includes fees, the APR gives you a more complete picture of the loan's cost than the interest rate alone. To see how different APRs and loan terms will affect your monthly payment, use our powerful Loan Calculator.

Common Uses for Personal Loans

People use personal loans for many reasons, including:

  • Debt Consolidation: Combining multiple high-interest debts (like credit cards) into a single loan with a lower APR.
  • Home Improvement Projects: Financing renovations or repairs without tapping into home equity.
  • Major Life Events: Covering costs for weddings, moving, or unexpected medical bills.
  • Large Purchases: For things like appliances, electronics, or a vacation.

When Should You Consider a Personal Loan?

A personal loan might be a good option if:

  • You have a good credit score, which will help you qualify for a low APR.
  • You need to fund a large, one-time expense.
  • You can comfortably afford the fixed monthly payments.

Before you apply, it's essential to understand exactly what you'll be paying each month and over the life of the loan. Our General Loan Calculator is the perfect tool to model different scenarios and find a payment plan that fits your budget.