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Personal loans are unsecured loans from a financial institution (bank, credit union, or online lender) that are repaid over a fixed period (often two to seven years) in equal monthly installments.
Unsecured The best personal loans do not require any collateral. Instead, the lending institution will assess your income, debts, and credit history. Failure to repay a loan can hurt your credit score.
What situations require a personal loan?
According to a NerdWallet survey published in October 2022, nearly a quarter of American adults (24%) borrowed an average of $5,046 in the last 12 months and took out a personal loan. Although private loan money can be used for anything, it is best to borrow money when the following conditions are met: it is spent on things that can improve someone's financial situation, such as paying off debt or essential home improvements.
Costs related to unsecured loans
Your credit history, income, and debt-to-income ratio will affect your personal loan interest rate.
A low credit score can result in an interest rate of more than 25%, while a high score can provide the borrower with a rate of around 11%-15%. Take a look at the following average personal loan interest rates:
Places with the best rates for individual loans
Any financial institutions, including online loan companies, traditional banks, and credit unions, will gladly provide you with money for personal reasons. Find the best option based on where you can get the best deal in terms of rate, terms, and features that fit your budget.
For example, choose an online lender if a quick and convenient loan application is crucial for you. On the other hand, if cheaper rates and personal assistance matter, a bank loan or credit union loan may be your preferred alternative.
Individual loans: benefits and risks
Personal loans are sometimes the best option and sometimes not, depending on your current financial situation and the purpose of the loan.
Reduced introductory rates compared to credit cards. Customers with an excellent credit history can get better interest rates on personal loans than on credit cards. Credit cards with promotional periods with 0% interest usually charge much higher rates after the end of the introductory period.
Monthly payments at a fixed interest rate. With a personal loan, you can rest assured that you will always know how much you owe and for how long. The monthly payments of other loan options, such as home equity lines of credit, can fluctuate due to their variable interest rates.
Flexible loan amounts. Personal loan amounts can range from $1,000 to $100,000, but your chosen lender and credit history will determine this. This range covers various expenses, from emergencies to significant home renovation projects.
The maximum APR can be high. If your credit is poor, interest rates on personal loans may be higher than credit card rates. Fees may apply. Costs such as loan origination fees or late payments may be incurred by borrowers in addition to the principal of the loan - in the event of debt escalation. Taking out a personal loan adds debt to your budget, so it's essential to consider the additional commitment and feel comfortable about repayment.
Finding the right personal loan for you
Easy credit approval. Pre-qualification with most online lenders for the projected interest rate includes a mild credit check. It's worth pre-qualifying for a loan from different lenders and comparing loan rates and features, as it won't affect your credit score.
Annual interest rates. The Annual Percentage Rate (APR) compares costs between different personal loan offers, considering the interest rate and any fees that may be incurred. Please find your potential interest rate and monthly cost with our loan calculator.
Personal loan products from over 35 financial institutions are rated and ranked through NerdWallet's review process. More than 45 data points are collected from each lender. We also conduct in-depth interviews with company representatives and compare them with other lenders targeting the same borrowers or offering similar personal loan products. The editors and writers at NerdWallet do a thorough fact check and update once a year, with further updates coming as the year progresses.
Federal Bureau of Consumer Financial Protection
Our star-rating reward loan providers provide borrowers with beneficial services such as easy pre-approval with no tricky credit collection, low-interest rates with no hidden fees, clear and understandable repayment terms, fast funding, helpful customer service representatives, positive credit bureau reports, and educational resources. In addition, we look at regulatory submissions from organizations such as the Consumer Financial Protection Bureau. We pay more attention to those that are most important to customers and have the most significant impact on their experience.