Millions of people rely on personal loans to pay unexpected expenses or make large yet necessary purchases. They're appealing because they typically have lower interest rates than credit cards, and simple monthly payments. Of course, personal loans are just one of the many financial options available to you when you need money. Get more info on personal loans and find out if they're right for you.

What Are Personal Loans?

Personal loans are loans that aren't earmarked for specific purposes, such as an auto loan or a mortgage. Instead, people can apply for personal loans for a variety of reasons, such as consolidating credit card debt, covering medical expenses, or buying new appliances for a home. With personal loans, you pay back the money in fixed monthly installments until the entire balance is paid off.

Are There Different Types of Personal Loans?

There are two main types of personal loans. An unsecured loan isn't backed by collateral. Secured loans, on the other hand, require you to put up a form of collateral or asset before being granted the funds. If you're unable to make the payments, the lender has the right to claim the asset.

How Much Can You Borrow?

Personal loan amounts typically range between $1,000 and $50,000, notes Experian. You usually have between two and five years to pay back these loans. The amount that you're eligible for depends on your credit score, your income, and how much debt you already have. In general, lenders favor borrowers with credit scores of 680 or higher, notes Finder.

What Are the Fees and Costs Associated With Personal Loans?

Before signing on the line and accepting a loan, it's important to go over the terms and note the fees and costs associated with it. Interest is the amount of money the lender charges for allowing you to borrow the money. This commonly ranges from 5 percent to 36 percent, depending on the lender and your financial history, notes Credit Karma. An origination fee is a one-time fee added to your loan to cover the cost of processing it. Some lenders also charge prepayment penalties if you pay off the loan before the term ends.

How Do Personal Loans Impact Credit Scores?

How a personal loan impacts your credit score depends on the lender. Once you submit your application, the lender typically pulls a copy of your credit report. This is known as a hard inquiry, and will lower your credit score by a few points. It's for this reason that you should do research on loan options ahead of time. This helps you find the one that you're likely to qualify for, and that best suits your needs.

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