A personal loan is money you borrow from a lender to pay for expenses, usually with a set repayment period and consistent monthly payments. The amount of the loan can range from about $1,000 to $50,000, and personal loans are typically unsecured (meaning no collateral is required). Different lenders offer different terms and interest rates, so it’s important to shop around when looking for a personal loan.
Credit scores are a key factor in the loan approval process, and applicants with higher scores tend to qualify for lower rates. Lenders also consider a borrower’s income when assessing their ability to repay, as well as their debt-to-income ratio (how much of a borrower’s monthly income goes toward paying off existing debts). Those with less-than-perfect credit may be able to find personal loans with alternative data that aren’t tied to credit history, or they may need to use a co-signer with an excellent financial profile to guarantee their loan.
The lending process varies by lender, but most follow similar guidelines. Once you’ve submitted an application and any required documents, the lender will review it and let you know whether you’re approved or not. If you’re approved, the lender will disburse funds into your bank account — they could come through a direct deposit or by sending you a check — and you can begin to repay the loan according to its terms. Your lender will likely report your payment activity to the credit bureaus.