Should I Get a Personal Loan?

A personal loan is an option if you’re looking to consolidate high-interest debt or finance a large expense like a home improvement project. Interest rates on personal loans are typically lower than credit cards for borrowers with good credit, and most personal loans are unsecured, meaning they don’t require collateral.

But financial experts generally advise against using a personal loan for a weeklong stay at the beach or a new TV. For discretionary purchases, it’s best to pay with less expensive alternatives like a 0% interest credit card or — the cheapest option — money you’ve saved up.

What is a personal loan?

Personal loans are a type of credit that consumers take out for a variety of personal reasons. Unlike mortgages or auto loans, personal loans aren’t earmarked for a specific purpose. You can use the loan for almost any reason.

Personal loans are installment loans; if you’re approved, you’ll receive a lump sum of cash that you repay in fixed amounts on a monthly basis until the loan term expires.

To determine whether you qualify for a personal loan, a lender will check your credit and income and gauge your ability to afford the loan. The minimum credit score to qualify for a personal loan is typically 610 to 640. Borrowers with the highest credit scores usually receive the lowest rates.

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