Guide to Personal Loans

A personal loan is a type of loan that can be used for almost anything. Repayment is over a set period of time.

Like auto loans, mortgages, student loans, and credit cards, personal loans are a type of credit. You can use a personal loan to pay for almost anything (though there are a few exceptions!).

Here’s where it gets exciting. In just the last ten years, companies have increasingly started using technology to find new ways to make applying, securing, and repaying personal loans a lot easier. There’s never been a better time to consider personal loans as an option.

What’s more important: a low monthly payment or a low APR?

When checking your rates for a personal loan, it can be difficult to weigh all your options. Some people say you should go for the offer that gives you the lowest monthly payment. Others say you should go for the lowest APR because it’s the best value.

The truth is that there’s no one right answer. The real question is whether you want to save on or help manage payments. Do you want a higher monthly payment over a short period of time or a lower monthly payment over a longer period of time? No one knows you or your money better, and even if a low APR sounds like it’s the better option, sometimes it’s worth thinking it through and doing the math to figure out what will work best for you.

What does it mean that my personal loan is unsecured?

In addition to considering factors like your credit score and income, secured loans are backed by something of value, like your home or your car. Unsecured loans aren’t backed by collateral and are usually issued based on things like your credit score and income.

When you apply for a secured loan, you back it up with something valuable to you as collateral, like a home or a car. A home equity loan, for example, is usually secured by your home.

Unsecured personal loans, don’t ask you to place anything up for collateral, because they’re based on your creditworthiness. Factors like your credit score, income, and other information on your credit report can help companies figure out if a loan is right for you. This type of loan typically has a higher interest rate than a secured loan but could be an option for anyone who hasn’t built a lot of equity in their home, car, or investments.

Your creditworthiness includes a bunch of different things like your credit score, your credit report, your debt-to-income ratio, and other factors.

For secured loans like home equity loans, you’ll likely need to get an appraisal to find out the equity on your home—which could add on weeks to the process. If you have invested a lot into your home, or you have a lot of investments, you could have a better shot at getting a secured home equity loan, but it can take a while. Personal loans could be a quicker option if you need money quickly.

What’s the deal with credit inquiries?

Soft credit inquiries don’t impact your credit score. Hard credit inquiries could impact your score for up to 2 years. What’s the difference?

There are two types of credit inquiries, but only one can impact your credit score. Soft credit inquiries, also known as soft pulls, can be generated during background checks, when applying for jobs, or checking your rates for credit cards or personal loans, and they don’t impact your credit score.

Hard Credit Inquiries & Your Credit Score

Hard credit inquiries, also known as ‘hard pulls,’ are usually generated when you’re applying for new credit, such as mortgages, loans, and new credit cards. While many companies allow you to check your credit score for free, and at no impact to your credit score, always read the disclosures to know when applying for credit could generate one of these hard credit inquiries.

When you apply for new credit, like a loan or a credit card, companies will likely generate a hard credit inquiry. A hard credit inquiry could impact your credit for up to 2 years. A single hard credit inquiry will not likely drop your credit score by more than a few points. It’s important to monitor hard credit inquiries on your credit report.

What’s an installment loan?

The ‘installment’ part of a loan means that you pay the loan back in fixed ‘installments’ over a set period of time.

Installment loans, (whether it’s a personal loan, a mortgage, etc.) are repaid in fixed ‘installments.’ Your payments will stay the same each month. Revolving credit, like credit cards, and most lines of credit, change each month with your spending, which means that your monthly payment could (and will likely) change depending on how much you spend. There are three different types of accounts that could affect your credit score:

Revolving Accounts
Installment accounts
Other types of accounts

Types of Accounts That Could Impact Your Credit Score

Type of account	What it is	What's included
Revolving accounts	This type of credit account ‘revolves’ or changes monthly, based on your spending.	• Credit Cards • Store Cards (ex. Target, Walmart credit cards) • Gas Station Cards (ex. Sunoco or Shell) • Personal or home equity lines of credit
Installment Accounts	These are usually fixed-payment plans, paid in regular monthly payments, until they’re paid in full.	• Mortgage loans • Auto loans • Student loans • Personal Loans
Open Accounts	Other types of accounts could affect your credit score. They vary from month to month, but are typically not reported to the credit bureaus.	While rare to be included on a credit report, other types of accounts include utility bills, such as cell-phone, electric, and cable bills.

Everyone wants to talk about money, but no one wants to talk about debt.

Sometimes we get weighed down thinking about our debt and it stops us from living our lives. Debt can just mean that you’re taking the next steps toward living your best life. Debt could just mean that you’re making progress toward your financial goals—whether it’s to get out of debt, or to start that new chapter in your life!

But be careful, while debt could be a vehicle to getting you where you want to go—not all debt is healthy. Every step of the way you should be making the right choices about your money and your long-term financial goals. We also always encourage you to speak with a financial adviser before making any financial decisions.

What’s the difference between a fixed and a variable interest rate loan?

Your payments on a fixed-rate loan stay the same, but payments on variable-rate loans could change every month.

A fixed-rate loan means that your monthly payments stay the same because the interest rate stays the same throughout the life of the loan. When you budget, you can account for the same amount every month. While fixed-rate loans can mean payment security, interest rates could be higher than variable-rate loans.

A variable-rate loan means that your monthly payment could change, based on your interest rate, which could change based on factors in the marketplace and changes in the economy. At the start of your loan, the variable-rate is usually a little lower than a fixed-rate loan, but it could rise. When you budget, you may not be able to anticipate every single shift in your variable-rate loan. And while there’s likely a cap for how much your loan’s variable-rate could rise, but it’s important to know all the details before you agree to its terms.

I thought personal loans were a last-resort option?

Some people used to think that personal loans were for last minute emergencies. However, personal loans have been a safe and smart option for many over the years. While the modern personal loan began shortly after World War II, there’s evidence that ancient Mesopotamians had a system for personal loans! And it hasn’t always been the George Baileys that lend money to their neighbors either. Personal loans have helped millions consolidate debt, start their next home improvement project, and even do things like publish their first book, travel to their homeland, and adopt their first child!

What's are personal loans?

What’s the difference between a personal loan and other kinds of loans?

What can I use a personal loan for?