Complete Guide to Personal Loans: Everything to Know

Need to borrow money but feeling overwhelmed by all the options? You’re in the right place. This guide will walk you through everything to know about personal loans – from application to repayment – in clear, simple terms. 💰

Plus, use the personal loan calculator found below to understand how an estimated monthly payment would look. Whether you’re consolidating debt, funding a home improvement project, or handling unexpected expenses, we’ll help you make the smartest borrowing decision for your situation. ✅

What is a personal loan?

A personal loan is a fixed amount of money borrowed from a financial institution that must be repaid over a set period through regular monthly payments, along with interest charges. 

One of the main advantages of personal loans is their flexibility – you have the freedom to use the funds for almost any legitimate purpose, making them a versatile financial tool when you need to borrow money.

---

MoneyLion can help you find and compare personal loan offers up to $50,000!

---

Key features of personal loans

• Fixed repayment terms usually between 1 to 7 years 
• Loan amounts typically range from $1,000 to $50,000
• Most personal loans feature fixed interest rates, though some lenders may offer variable rates
• Unsecured – typically no collateral requirements 
• Funds can be used for almost any purpose

➡️ How Do Personal Loans Work?

➡️ How Much of a Personal Loan Can I Get?

➡️Which is Better – Variable vs Fixed Rates?

➡️ What is an Unsecured Loan?

What can a personal loan be used for?

One of the benefits of personal loans is that they can be used for just about any legitimate purpose. Take a look at some of the ways you can put funding from a personal loan to use.

• Debt consolidation: Combining multiple high-interest debts into a single loan with potentially lower interest rates. 
• Home improvement projects: Renovating your kitchen, adding a new roof, or fixing major household issues. 
• Emergency expenses: Handling unexpected costs like urgent home repairs or veterinary bills.
• Large purchases: Funding major purchases like appliances, furniture, or home equipment.
• Medical expenses: Paying for unexpected healthcare costs or procedures not covered by insurance, such as IVF or cosmetic surgeries. 
• Major life events: Covering expenses for weddings, moving costs, or funeral arrangements.

Learn More: What Can Personal Loans Be Used For?

Understanding personal loan costs

Interest rates and fees are two key factors that determine the total cost of your personal loan.

Personal loan calculator and interest rates

Most personal loan interest rates range from 6% to 36% APR, with your specific rate depending on factors like your credit score, income, debt-to-income ratio, loan term, and loan amount. You can use a personal loan calculator for an estimate of how much your personal loan would cost.

Additional fees

You may also encounter additional fees such as origination fees (typically 1% to 8% of the loan amount), late payment charges, prepayment penalties, application fees, and returned payment fees. 

Understanding these costs upfront helps you evaluate the true cost of borrowing and choose the most affordable loan option.

How to qualify for a personal loan

Every lender is different, so the requirements for a personal loan you’ll come across will vary from lender to lender. That said, here’s how a typical personal loan application will be evaluated.

Credit score requirements

A credit score of 670 or higher can help you qualify for a personal loan with the lowest interest rates and best terms. 

Even if you have bad credit, you may still be able to get a personal loan, but you’ll likely face higher interest rates and may need to explore options like adding a cosigner or offering collateral to improve your chances of approval.

Income and employment

Personal loan lenders will typically verify your ability to repay the loan by reviewing:

• Current employment status
• Monthly income
• Debt-to-income ratio (DTI)
• Length of employment history

Additional required documents

You will likely also be asked to provide the following:

• Government-issued ID
• Proof of income (pay stubs, W-2s, tax returns)
• Bank statements
• Utility bills or lease agreement (proof of residence)
• Social Security number

How to get a personal loan

Getting a personal loan doesn’t have to be complicated. Here’s how you can find and compare your options:

Step 1: Check your credit score: Obtain your free credit report and review it for errors. A higher credit score increases your chances of approval and better rates.

Step 2: Head to MoneyLion: Enter some basic information about yourself including income, employment details, and the loan amount you’re seeking.

Step 3: Compare your loan offers: Review multiple loan offers side by side, comparing interest rates, terms, and monthly payments. 

Step 4: Select the best fit: Once you’ve found the right loan, follow the steps to complete the process. You could receive your funds the same day with some lenders. 

Read More: How to Get a Personal Loan

3 Tips for managing your personal loan

Once you’ve obtained your personal loan, it’s important to manage it responsibly. Here are some key strategies to help you stay on track:

Create a personal loan repayment strategy

Having a solid plan in place will help ensure you make your payments on time and potentially save money in the long run:

• Set up automatic payments to avoid late fees
• Consider biweekly payments to reduce interest
• Create a budget that prioritizes loan payments
• Build an emergency fund to ensure consistent payments

Monitor your credit

Track your credit score regularly to ensure loan payments are properly reported and your credit improves over time. 

One of the best ways to stay on top of your credit score is through the MoneyLion app. Access top tools to track your daily spending and monitor your credit score. 

Consider early repayment

If your loan doesn’t have prepayment penalties, making extra payments can save on interest and help you become debt-free sooner.

Learn More: How to Pay off a Personal Loan Faster

Personal loans vs. other financing products

When you need to borrow money, personal loans are just one of many financial tools available. It’s important to take the time to compare how they measure up, so you can choose the right solution for your needs. 

Personal Loans vs. credit cards

Personal loans typically offer lower interest rates than credit cards and have fixed monthly payments. While credit cards provide more flexibility for ongoing purchases and rewards, their variable rates and revolving balances can make them more expensive for large, one-time expenses.

Learn More: Personal Loan vs Credit Card

Personal Loans vs. lines of credit

While personal loans provide a lump sum with fixed payments, lines of credit offer flexible access to funds as needed, similar to a credit card. Personal loans are better for one-time expenses since you know exactly what you’ll pay monthly, while lines of credit work well for ongoing expenses or when you’re unsure how much you’ll need to borrow.

Learn more: Personal Loan vs Line of Credit

Personal Loans vs. secured loans

Most personal loans are unsecured, meaning they don’t require collateral, while secured loans like mortgages, auto loans, and home equity loans require you to back the loan with valuable assets. 

With secured loans, the lender can take possession of your asset if you default. Personal loans, while usually having higher rates, offer more flexibility since you can use them for any purpose and you won’t automatically risk losing specific assets.

Learn more: Secured vs. Unsecured Loan: Which Should You Choose?

Red flags to watch out for when it comes to personal loans 🚩

Before signing any loan agreement, watch out for these warning signs of predatory lending practices. 

Predatory lending is commonly seen with payday loans and other high-cost loans that trap borrowers in cycles of debt through extremely high interest rates (sometimes 400% APR or higher) and aggressive collection practices. 

Legitimate lenders won’t guarantee approval without credit checks, pressure you to borrow more than you need, charge excessive fees, or hide their terms and conditions.

When reviewing your loan agreement, pay close attention to:

• The total cost of the loan
• All fees and charges
• Prepayment penalties
• Late payment consequences
• Default terms

Final thoughts on personal loans 

Personal loans can be valuable financial tools when used responsibly. By understanding the various types, costs, and requirements associated with personal loans, you can make an informed decision about whether this borrowing option is right for your needs. 

Remember to compare multiple lenders, read the fine print carefully, and always have a solid repayment plan before taking out a personal loan.

FAQ