Should You Get A Personal Loan?

Want to know more about personal loans but don't know where to look? Read on to learn how they work and if they're right for you.

Should You Get A Personal Loan?

What Is A Personal Loan?

A personal loan is a type of loan that can be used to cover a bunch of different needs. You usually get it from a bank or other lender with a fixed interest rate and a set time to pay it back.

You don't need to put up any collateral for a personal loan (that makes it unsecured), so you can use it for whatever you need - like consolidating debt, fixing up your home, paying for medical bills, going on a trip, or paying for school.

If you need to payoff your credit card, here's a useful tool to help you customize your monthly payment & interest rate to determine how you can pay your debt off sooner and not accrue more interest than necessary.

Whether a personal loan is right for you or not, is a…well, personal choice! Not everyone should get a personal loan and there are many pros and cons (as well as risk) to taking one out.

For instance.


  • Can be used for a variety of personal needs, such as debt consolidation and home improvement.
  • Quick and easy application process.
  • Can be used to build credit history.


  • High rates of interest than other loan types.
  • Strict repayment terms.
  • Not suitable for large purchases.
  • Can have higher fees than other loan types.
  • Can be difficult to get approved if you have bad credit.

What Types Of Personal Loans Are There?

Personal loans come in a variety of forms and can be used for a variety of purposes. Some of the most common types of personal loans include:

  1. Secured loans: These loans require a form of collateral, such as a car or house, to secure the loan. This type of loan is usually available at a lower interest rate and has a higher loan amount.
  2. Unsecured loans: These loans do not require any collateral and are based solely on the borrower's creditworthiness. Unsecured loans usually come with higher interest rates and a lower loan amount.
  3. Debt consolidation loans: These loans are used to consolidate multiple debts into one loan with a lower interest rate and a single monthly payment.
  4. Personal line of credit: This type of loan is similar to a credit card in that it allows a borrower to borrow up to an approved limit and make payments as needed. Companies like Wells Fargo have completely eliminated PLOC’s, so keep that in mind. Banks are less interested in unsecured Personal Lines of Credit than they were in the past.
  5. Short-term loans: These loans are typically taken out for a shorter period of time and with a higher interest rate. Think “payday loan”, also, please never get a payday loan. They’re horrible and completely predatory.
  6. Home improvement loans: These loans are used to finance home improvement projects and are usually secured by the home. Think of this like a traditional HELOC, or what you hear when someone says “I refinanced my house”. Often some of the home’s equity is taken out and the loan is modified to a lower interest rate, and many use-cases are for home improvement loans.

How Do Personal Loans Work?

Personal loans can be a great way to get the money you need, when you need it. It works by providing the funds you need in exchange for regular payments over a set period of time.

When you accept the loan terms, you're typically agreeing to the loan amount, the interest rate, and the payment schedule. Once all of the terms are agreed on, the lender will give you the money. From there, it's up to you to make your payments on time and in full, which means both the principal and interest payments.

If you don't make these payments, however, that can be incredibly damaging to your credit score; at least in the short-term.

Once you've paid off the loan and all of the payments have been made, then you won't owe anything else to the lender.

Just remember that taking out a personal loan is a big commitment, so think it through before you make your decision and like I said above, if you DO take out that loan, please make your payments on time!

What Is The Application Process Like?

The application process for a personal loan is typically straightforward. Most lenders will require an application, which can be done either online or in person.

Before applying, make sure you have all of the necessary documents ready, including proof of income, a valid government-issued ID, and bank account information.

The lender will review your application and run a credit check to assess your creditworthiness, which, hopefully you've already gotten an estimate of in advance (see if your bank offers free credit score monitoring!).

If approved, you will need to sign the loan agreement, which outlines the terms and conditions of the loan. Read the fine print so that you understand the costs and repayment terms. If you need time, take the time. Don't rush into this decision.

After signing the agreement, the funds will usually be deposited into your bank account within a few days, and may even be quicker if you're using your own bank for this loan.

What Can I Use A Personal Loan For?

Here are just some of the uses. Granted, they're the most popular ways to use a personal loan, but you can really use it for anything.

  • Debt consolidation
  • Home improvement
  • Medical expenses
  • Wedding expenses
  • Vacation expenses
  • Education expenses
  • Car purchase or repair
  • Emergency expenses
  • Business expenses
  • Moving expenses
  • Paying for cosmetic surgery
  • Paying for veterinary expenses
  • Buying furniture or appliances
  • Paying for in-home care for an elderly parent
  • Paying for fertility treatments
  • Paying for a family member's education
  • Buying a boat or recreational vehicle
  • Covering living expenses during unemployment
  • Covering the cost of a divorce
  • Legal fees
  • Tax payments

What Is The Average Interest Rate On Personal Loans?

The interest rate on personal loans can vary quite a bit depending on what type of loan it is, who the lender is, and the borrower's credit score. That's just a long-winded way of saying "It depends...", because it does.

Generally, it's somewhere between 6 to 36%, and we wouldn't be surprised with curent rate increases if the average APR is closer to 20%. As an example, AmericanExpress just offered me a $25k loan at 12.5%. I have excellent credit and plenty of history with them, and even that wasn't very tempting.

So, yes, unsecured personal loans can most certainly have absurdly high APR's.

Now, with a secured loan you might find a better deal, because you're securing the loan with an asset (house or vehicle is typical) and you can find a better rate. If you have that option, it makes sense to look at it first before going unsecured if you're rate sensitive (aren't we all?)

Are Personal Loans Secured or Unsecured?

Personal loans can be either secured or unsecured.

Secured loans, as stated above, require a form of collateral, such as a car or house, to secure the loan.

This type of loan comes with an array of advantages, including generally lower interest rates and higher loan amounts. It also provides an extra layer of security for the lender, as the lender can repossess the collateral if the borrower fails to make payments.

Unsecured loans, on the other hand, do not require any collateral and are based solely on the borrower's creditworthiness.

These loans don't provide the same level of security to the lender as secured loans, as the lender cannot repossess any collateral in the event of default (that's risky!)

Unsecured loans usually come with higher interest rates and a lower loan amount, though they may still be a good option for borrowers with strong credit histories, but, as stated all depends!

How Many Personal Loans Can You Have At Once?

There is no fixed limit on the number of personal loans (or even loans in general) that you can have at once. You're more likely to run into 2 major issues with loans.

High DTI: This means a high debt-to-income ratio, and it's a percentage that's extremely important to lenders. If a person has a DTI ratio of 50% or above it's generally considered a maximum.

Think of it like a hard stop. If more than 50% of your pre-tax pay is being spent on loans, no matter what type of loans (house, car, credit line, personal, .etc) - lenders will usually deny the applicant immediately.

Same Lender: Banks typically have a set number of in-house lending or credit products they're willing to open for one customer. It's a risk thing, and every financial institution attempts to mitigate risk, or "exposure to risk" in different ways. This is one of them. So are minimum required credit scores and DTI ratios.

Now, let's talk about the impact to you.

Multiple personal loans can increase your overall debt load and make it more difficult to manage your finances. Be mindful of your DTI ratio and try to stay well under the 50% cap if you do decide to take out a 2nd (or even 3rd) loan.

What Banks Offer Personal Loans?

Most banks off these loans. Some of the most popular banks include Wells Fargo, Bank of America, Chase, US Bank, Citi, Capital One, and PNC Bank. However, I'll let you in on a little tip, credit unions are usually your best bet for a low-APR loan.

The key, whether you use a traditional big bank or a local credit union is to shop around. This means comparing rates, however, you don't want to go shotgunning your credit apps like mad, either, as that can lower your score.

If you use our site within a 7 day window of first applying for a loan, any credit pulls (hard pulls) will be lumped together as lenders can see you're applying for a loan, not many different loans. They do the same thing for vehicles and mortgages.

Can You Get A Personal Loan With Bad Credit?

I have a feeling this will be one of the most popular search terms on this article, and for good reason, getting a personal loan with bad credit can be difficult.

I'm not going to sugarcoat this like most websites do and say "some banks will, some won't", instead, I'll say - most traditional banks won't lend under a 620.

What I will say, though, is that there are entire companies that cater to consumers with poor credit and approval rates are much higher. Of course, so is the APR, but if you have poor credit you know the game. The worse your credit, the higher the interest rate!

Also, since these are typically unsecured loans (no collateral for the lender to repossess) then you're also likely to have lower approval amounts. Yes, I know, that's not ideal. We all want a bank to lend us $100,000 over 5 years for 2% interest, but they're all about that risk mitigation.

Consumers with bad credit are a risk. Plain and simple.

And just when you thought you were done jumping through hoops, sometimes you even need a co-signer. Whether you have a 300, 400, 500 or even 600 credit score; sometimes it's a requirement depending on your credit profile.

Can You Get A Personal Loan If You’re Unemployed?

While technically yes, see above on the co-signer rule as it would likely be required to approve.

It's not likely that you will get a lender to approve your application for an unsecured loan if you don't currently have a job. That's just the hard truth.

One exception to this is collateral.

If you didn't have a job but did own a house with equity, or a vehicle outright (no loan/lien-holder) you could very easily borrow against asset.

I'm not saying this a great idea, but it's available in that instance. Just keep in mind that your interest rate will likely be higher (risky), your terms shorter (risky) and your loan amount low (sub $10k, likely)