What is a personal loan?
A personal loan is a type of financing that allows individuals to borrow money for their own use, usually at a fixed interest rate and with a set repayment schedule. Depending on the lender, some borrowers may get fast approval and same-day funding.
Personal loans differ from other types of loans in that they are unsecured. In other words, they don't require collateral, like a home or car, that the lender can take if the borrower fails to pay back the loan.
What can personal loans be used for?
Personal loans can be used for almost any purpose, such as consolidating debt, funding home improvement projects, paying medical bills or financing large purchases like furniture or appliances. Loan amounts typically range from $1,000 to $50,000, with rates typically ranging from 6% to 36%. Your creditworthiness, income level and DTI ratio will determine your approved loan amount and rate. Generally, higher credit scores and income levels will result in more generous borrowing terms, although many lenders will work with borrowers who have bad credit. To receive the best terms and lowest interest rate possible, you should shop around with multiple lenders before applying for a loan.
How can I get approved for a personal loan?
Before applying for a new loan, check your credit score and request a free credit report from AnnualCreditReport.com. Check for any negative activity that could be weighing down your score and prevent you from qualifying for a loan. Dispute any mistakes and contact lenders directly with a goodwill letter for any missed payments. A goodwill letter is a polite request for the creditor to remove negative marks from your report.
If you have a negative mark on your credit report for missed payments, consider sending the lender a request to have it removed, especially if you’re now current on payments.
Here are a couple of tips for increasing your chances of approval:
Improve your credit score if needed
Once you know your credit score, you can shop around for the best rates and terms to see what’s available to you. If you don’t like the rates you’re getting, consider taking a few months to work on your credit score first. For example, paying down credit card debt lowers your credit utilization ratio (how much total credit you’re using versus how much credit you have available to you), which accounts for 30% of your FICO score.
Consider adding a co-signer
If the lender allows a co-signer, adding one may help you secure a better rate and increase your chances of approval. Select a co-signer who has a higher credit score and income level than you for the best results. However, adding a co-signer to your loan is risky for that person, since it means they will be on the hook for any money you don’t pay.
How to find the right lender for a personal loan
In addition to checking lenders’ annual percentage rates (APRs), you should look for certain features, such as:
- How easy a lender’s application is
- Low or few fees
- Account management options (like if a lender has a mobile app or if you can adjust the due date)
- Speed of funding after approval
Choose the right lender for you
There are a few different types of lenders you can choose from. Banks, credit unions and legitimate online lenders are safe to borrow from, but payday lenders should be avoided since they make it hard for a borrower to escape loan debt.
Banks
If you have an account in good standing with your current bank, applying for a personal loan with it can come with perks. Some banks will give preferred approval to current customers, and if your bank is a traditional brick-and-mortar bank, you can complete the process in person. You may also get a reduced rate for being a current customer.
Credit unions
Many times credit unions are able to provide members with lower rates than a traditional bank. Depending on your credit union, you might also have more flexible repayment terms, too.
Online lenders
These lenders streamline the loan process through online applications, making it possible to get your money as soon as the same day.
Payday lenders
Payday lenders should be avoided if possible. According to Lyle Solomon, principal attorney at Oak View Law Group, a law firm based in Auburn, California, “Payday loan APRs are typically 398%.” This rate is much higher than the rates you receive with other personal loans.
“The majority of payday lenders charge a fee of between $15 and $30 for every $100 borrowed,” he said. “In addition to the initially borrowed money, these charges add up quickly over a short period and are frequently quite challenging to pay.”
How to apply for a personal loan
Applying for a personal loan online typically takes around 30 to 45 minutes. To make the process as efficient as possible, plan on having the following ready:
- Your full name
- Your Social Security number
- Income and employment verification
- Proof of address
- What you’ll use the loan for
Alternatively, you can apply for a personal loan in person if you choose your local bank or credit union. Applying over the phone might be an option with some lenders, too.
Remember that every time you apply for a loan, the lender will do a hard credit check, which temporarily impacts your credit score. Look for lenders that offer pre-qualification without a hard credit inquiry, which allows you to see what offers you may qualify for with no effect on your credit score.
FAQ
How will a personal loan affect my credit score?
When you formally apply for a personal loan, your credit score will decrease slightly because the lender will do a hard pull of your credit. However, a personal loan can ultimately help your credit score, especially if you are using it to consolidate and pay off debt.
What is the maximum amount I can borrow?
The maximum personal loan you can borrow depends on the lender and your creditworthiness. Some lenders allow up to $100,000 in funding for applicants with excellent credit scores (a FICO score of 740 to 850) and high incomes.
» MORE: How to get an $80,000 loan
What are the fees associated with a personal loan?
Some of the fees associated with personal loans are origination fees, which cover the underwriting costs associated with loans. These fees typically range from 1% to 8% of the loan amount. Some lenders may also charge late fees or prepayment penalties, so be sure to check lenders’ terms before taking out a loan.
What should I do if I’m denied a personal loan?
If you’re denied for a personal loan, you’ll be given a reason for your denial. If you’re unable to remedy the issue by improving your credit score or other means, or if you need the money urgently, you may want to consider a secured loan.
How long does it take to get approved for a personal loan?
Many lenders will send you an approval decision within a few days, though some lenders may ask for more documentation before issuing approval. Once you’re approved, you can typically receive your funds within a few days. If you’re not approved for a loan, the lender will let you know the reason. Even if you are approved, you can still change your mind before you sign the agreement without any consequences.
Bottom line
Personal loans can be a good choice for individuals who need fast funding for certain expenses, can secure a low APR and can afford the monthly payments. If you’re desperate for quick funds but you don’t have a good enough credit score or income to qualify for a loan, explore other ways to borrow money, like a secured loan or a peer-to-peer loan from family or a friend. If possible, avoid getting a loan through a payday or title lender since their high APRs will hurt your finances more than help them.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- Consumer Financial Protection Bureau, “What Can I Do if My Credit Application Was Denied Because of My Credit Report?” Accessed on Nov. 6, 2025.
