A personal loan is money borrowed from a bank or lender that you pay back over a set number of years. Most personal loans are unsecured, meaning you don’t have to put up collateral. Typical personal loan amounts range from $1,000 to $50,000 or more, with interest rates typically between 6 and 36 percent. Depending on your credit and income profile, you may be able to borrow with a lower rate by applying with a cosigner.
To be approved for a personal loan, lenders review your credit report and take into account your debt-to-income ratio. A higher credit score and a low debt-to-income ratio will improve your chances of being approved for a personal loan with the best interest rate. Lenders may also look at your credit history for any red flags, such as late payments and collections accounts.
Once you’ve found a lender that offers the terms and rates you want, you’ll have to submit an official application with supporting documents. This is when lenders will likely do a hard credit inquiry, which can have a small negative impact on your credit score. You’ll also likely have to submit additional information, such as proof of identity and income.
Taking on any type of debt is a big decision, so it’s important to consider all of the pros and cons. You can start by checking your free Experian credit score and Equifax credit report to pinpoint areas you can work on to strengthen your credit profile. You can also work on paying down existing debt to reduce your overall debt-to-income ratio, which could help you qualify for a personal loan with better terms.