What It Means
A personal loan is an unsecured installment loan that can be used for almost any purpose, including debt consolidation, home improvements, medical expenses, or large purchases. Because personal loans are unsecured (no collateral required), they typically have higher interest rates than secured loans like mortgages or auto loans. Rates generally range from 6% to 36%, depending on your credit score and financial profile. Personal loans offer predictable fixed monthly payments over a set term (usually 2-7 years), making budgeting easier. They are one of the most popular tools for debt consolidation because they can replace high-interest credit card debt with a single, lower-interest payment.
Frequently Asked Questions
What credit score do you need for a personal loan?
Most lenders require a minimum credit score of 580-640 for personal loans. The best rates are reserved for borrowers with scores of 720+. Some online lenders work with lower scores but charge higher rates.
Does a personal loan help your credit score?
Yes, when managed responsibly. It adds to your credit mix, builds payment history, and can reduce utilization if used for debt consolidation. However, the initial hard inquiry causes a small temporary dip.