Personal loans offer a flexible way to borrow money for almost any purpose, from consolidating credit card debt to covering an unplanned expense. Depending on your credit score and how much debt you carry, a personal loan may not always be the most cost-effective solution.
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Personal loan or debt relief: which fits you?
Personal loan
Upsides
- +Fixed monthly payments
- +Lower interest rates if you have good credit
- +Fast funding (1 to 7 days)
Downsides
- –Requires good credit (typically 680+)
- –You still pay the full amount you owe
- –May have origination fees (1 to 8%)
Works well if:
You have a credit score above 680 and want to lower your interest rate on existing debt.
Debt relief program
Upsides
- +No minimum credit score required
- +Confidential consultation to check options
- +One simple monthly payment
Downsides
- –Typically requires $10,000+ in debt
- –Takes 24 to 48 months to complete
- –Can affect your credit while accounts are enrolled
Works well if:
You have $10K+ in debt, fair or poor credit, or are having trouble keeping up with payments.
Quick decision guide
- 1
Do you have more than $10,000 in unsecured debt?
If yes, a consolidation loan could lower what you pay each month.
- 2
Is your credit score below 680?
Personal loans may have higher rates below that mark. Check what lenders in the network would offer you.
- 3
Are you struggling to make minimum payments?
If yes, check your options to see what a lender could offer.
- 4
Is your credit score 680+ and you just want a lower rate?
A personal loan may be a good fit. Compare rates from multiple lenders before you decide.
How personal loans work
Personal loans are installment loans that let you borrow a lump sum and repay it over a fixed term with fixed monthly payments. Most personal loans are unsecured, meaning you don't need collateral.
Key terms to understand
- APR (annual percentage rate): The total cost of borrowing, including interest and fees.
- Origination fee: A one-time fee charged by some lenders, typically 1 to 8% of the loan amount.
- Loan term: How long you have to repay the loan, usually 2 to 7 years.
- Prepayment penalty: A fee for paying off your loan early (most lenders don't charge this).
Common uses for personal loans
- Debt consolidation: Combine multiple high-interest debts into one lower-interest payment.
- Home improvement: Finance renovations without tapping home equity.
- Major purchases: Fund large expenses like weddings or moving costs.
- Emergency expenses: Cover unexpected medical bills or car repairs.
How to qualify for a personal loan
Lenders typically consider the following factors when evaluating your application:
- Credit score: Most lenders require a minimum score of 580 to 680.
- Income: You'll need to show steady income to afford monthly payments.
- Debt-to-income ratio: Lenders prefer a DTI below 40 to 50%.
- Employment history: Stable employment improves your chances.
Questions people ask
What credit score do I need for a personal loan?
Requirements vary by lender. Some accept scores as low as 580, while others require 680+. Better credit scores qualify for lower interest rates. If your score is below 580, debt relief programs may be a stronger option since they don't require a minimum credit score.
Should I get a personal loan or use debt relief?
Personal loans work well if you have good credit and can qualify for a lower rate than you're currently paying. Debt relief is typically better if you have $10,000+ in debt, lower credit scores, or are struggling to make minimum payments.
How fast can I get funded?
Many online lenders offer same-day or next-day funding after approval. Traditional banks may take 1 to 2 weeks.
Should I get a personal loan or use a credit card?
Personal loans are better for large, fixed expenses because they have fixed payments and often lower interest rates. Credit cards are better for smaller, ongoing expenses where you can pay off the balance monthly.