Personal loan

What It Means

A personal loan is an installment loanInstallment loanA loan you receive as one lump sum and repay in a set number of scheduled payments, such as a car loan, mortgage or personal loan. See more that pays you a lump sum, which you repay in fixed monthly payments over a set term. Most personal loans are unsecured, meaning nothing you own backs them, so the lender prices the loan mainly from your credit and income. Experian says they generally run from $1,000 to $100,000 over one to seven years, and people use them for things such as combining credit card debt or covering a large one-time cost.

How People Say It

• "I took out a personal loan to pay off my cards."
• "They approved me, but the fee came out of the loan."
• "It's a three-year loan with a fixed payment."

The Breakdown

Worked example. You're approved for $1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more,000 at an example 12% for 36 months, with a 5% origination feeLoan origination feeA charge a lender makes for setting up a loan, usually a percentage of the amount borrowed, either paid up front or taken out of the money you receive. See more taken out of the loan:

What the result means. The fee is paid up front but repaid with interest over the whole term, which is why the APR on an offer with a fee sits above its interest rate. If you need the full $10,000 in hand, you'd have to borrow more. Comparing offers by APR and by the total repaid puts a no-fee loan and a lower-rate loan with a fee on the same footing.

What moves the price. Your credit scoreCredit scoreA three-digit number calculated from your credit report that lenders use to judge how likely you are to repay; common models run from 300 to 850. See more, your income and existing debtsLiabilitiesDebts and other money you owe, such as a mortgage, a car loan or a credit card balance. Your assets minus your liabilities is your net worth. See more, the amount and the term. Experian notes that personal loan rates can reach 36% or more for borrowers the lender sees as riskier, and that people with good to excellent credit can sometimes find a loan with no origination fee.

Good to Know

Using a personal loan to combine credit card debt is one of the routes the CFPB lists for debt consolidationDebt consolidationRolling several debts into one new loan or card balance, usually to get a single payment and, ideally, a lower interest rate. See more, and the CFPB's warnings apply: an advertised low rate may not be the rate you qualify for, and a new loan doesn't fix spending that runs ahead of income. Read the loan agreement for the APR, the fee, any late feeLate feeA charge added when a payment arrives after its due date, set by the card agreement, lease or contract and limited by federal or state rules. See more and whether paying early carries a penalty. Checking your rate with several lenders before you apply lets you compare real offers.

Related Terms and Categories

• Installment loan

  A loan you receive as one lump sum and repay in a set number of scheduled payments, such as a car loan, mortgage or personal loan.

• Debt consolidation

  Rolling several debts into one new loan or card balance, usually to get a single payment and, ideally, a lower interest rate.

• Loan origination fee

  A charge a lender makes for setting up a loan, usually a percentage of the amount borrowed, either paid up front or taken out of the money you receive.

• Unsecured debt

  Money you owe that isn't backed by collateral, such as credit card balances, medical bills and most student loans.

• Credit score

  A three-digit number calculated from your credit report that lenders use to judge how likely you are to repay; common models run from 300 to 850.

Debt and credit