A personal loan generally provides a fixed amount of money that you repay in installments over an agreed term. Many are unsecured, meaning they do not require collateral, but approval and pricing depend heavily on the lender's assessment of risk.
What determines your rate?
Lenders may consider your credit history, income, existing debt, requested amount, loan purpose, repayment term, and other information. An advertised minimum APR is not a promise that every applicant will receive it.
APR versus interest rate
The interest rate measures the cost of borrowing the principal. Annual percentage rate, or APR, is designed to provide a broader annualized measure that includes interest and certain required fees. Compare APR, monthly payment, repayment term, origination fees, late fees, and total repayment together.
Fixed and variable rates
A fixed rate generally remains the same for the stated loan term, producing predictable scheduled payments. A variable rate can change according to the agreement, which may make future payments less predictable.
Before accepting an offer
- Confirm the amount you will actually receive after any origination fee.
- Review the monthly payment and total of all scheduled payments.
- Check whether there is a prepayment penalty.
- Understand late-payment and returned-payment fees.
- Confirm when the first payment is due.
- Verify the lender and read the complete agreement.
When a personal loan may not help
Borrowing may make a difficult situation worse when the payment is not affordable, when the loan funds discretionary spending, or when consolidation is followed by new credit-card balances. Consider nonprofit credit counseling and hardship options when additional debt would not solve the underlying problem.